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8 November 2013 (Property tax news)

Kevin McDaid, Chartered Tax Adviser (ATT, CTA) Ex HMRC, 30 years + experience
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Treasury considers CGT for foreign property owners

Chancellor George Osborne is said to be considering imposing capital gains tax (CGT) on foreign owners of UK property as one of the measures to be announced in the Autumn Statement on 4 December 2013.

While UK residents have to pay CGT if they make a profit when reselling any property which is not their main home, non-residents are presently exempt from CGT on all their properties. Under the proposals, which the Chancellor is said to be ‘actively investigating’, overseas buyers would become liable for CGT, as they are in many other countries throughout Europe.

However, the proceeds that could be obtained from any such action would appear to be minimal (in the great scheme of things) and out of step with the government's open for business agenda, as it is unlikely to send a welcoming message to foreign investors.


Inheritance Tax Business Property Relief for furnished holiday lets (FHL) case concluded in favour of HMRC.

The ability to apply Inheritance Tax business property relief on any asset means that the value of that asset is removed from the deceased’s estate. Consequently, it is a very favourable tax relief with IHT chargeable at 40%.

As the term suggests it only applies to business assets. For a while the long-running Pawson case gave hope that FHLs would be treated as business assets for IHT BPR purposes.

Unfortunately, the case has finally come to a conclusion with the executors of the late Mrs Pawson failing to succeed in their applications for leave to appeal against the judgment of the Upper Tribunal earlier this year.

The decision to refuse to allow leave to appeal to the Court of Appeal in the case of R & C Commrs v Lockyer [2013] BTC 1,605, which was made on 2 October 2013, marks the end of any options for challenging the HMRC’s original decision.

The case concerned a claim for inheritance tax business property relief (BPR) in relation to a FHL. The First-tier Tribunal had originally allowed the relief in respect of Mrs Pawson’s share in the family holiday letting cottage. This was on the basis that sufficient services were performed over and above those expected from a normal letting business to conclude that the business was not one of mainly holding an investment.

However, this decision was overturned in the Upper Tribunal in February of this year, where the Tribunal decided that the level of activities, separate from the letting of the property, were insufficient to distinguish it from an actively managed investment business.

During the tribunal appeals, it was accepted that there was a spectrum of levels of activity on which a particular business had to be placed, although no specific guidance was given as to how this would impact on FHLs.


The case does not mean that it is impossible for a furnished holiday let to be eligible for business property relief. However, as I have underlined above, in order to be distinguishable from a pure investment, the level of services provided must be considerably above the norm.

It is a pity that no clear guidance was given from an FHL perspective.

It should be noted that a FHL is regarded as a business from a Capital Gains Tax perspective; the main benefits here being CGT Entrepreneurs Relief and Rollover relief.


Kevin McDaid, ATT, CTA

7 November 2013