Business property relief on FHL - change of use

What happens to BPR if a FHL changes to be a non-FHL at a later date? Is the BPR completely lost?

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Hi all,

I have a client who is thinking about purchasing a FHL. The possible plan is to use it a bit themselves but mainly let it out on short term lettings in Cornwall. The client is based in London and so will be paying a management company to manage the whole affair.

Under these circumstances I understand that BPR would likely be available on death (correct me if I'm wrong here).

What I am unsure about is if the client either subsequently sells up from London and then moves into the FHL, it becoming their PPR, would there be any BPR recognistion for the period it was a FHL, or does BPL only apply if the property was a FHL on or around death.

What would be the case if the FHL simply got changed into a second home, with no FHL in later life? 

I'm guessing no BPR in either case, but I can't find anything on change of use.

Your wisdom and experience is much appreciated!

Replies (7)

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By David Ex
27th May 2021 11:47

https://www.gov.uk/business-relief-inheritance-tax/what-qualifies-for-bu...

“You can’t claim Business Relief on an asset if it:
...
- wasn’t used mainly for business in the 2 years before it was either passed on as a gift or as part of the will
- isn’t needed for future use in the business”

Would be a very easy IHT avoidance plan otherwise.

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By Tax Dragon
27th May 2021 18:41

Kylo Ren wrote:

Under these circumstances I understand that BPR would likely be available on death (correct me if I'm wrong here).

HMRC for one thinks you are wrong. See IHTM25278.

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Replying to Tax Dragon:
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By The Dullard
27th May 2021 20:13

It's not just HMRC's view. It was the decision in Pawson.

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Replying to The Dullard:
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By Tax Dragon
27th May 2021 21:07

As HMRC is happy to point out in IHTM25278, adding:

HMRC wrote:

In another case of Anne Christine Curtis Green v Commissioners for HMRC [2015] UKFTT 334 (TC) the Tribunal supported this approach. The judge also said that scale was not a factor (the property consisted of five self-catering units, as opposed to the single unit in the Pawson case).

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Replying to Tax Dragon:
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By The Dullard
27th May 2021 21:36

Yes, but Pawson went to the UTT, and so it's binding as a High Court decision, and nothing else is needed FHLs are still businesses that do comprise the making and holding of investments.

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Replying to The Dullard:
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By Tax Dragon
27th May 2021 21:55

Meaning "the Tribunal supported this approach" is somewhat disingenuous as it didn't have the choice? Fair comment. I suspect HMRC is keen to make the "scale" point though, because - I suspect - this is often/has often been argued as a factor.

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Replying to Tax Dragon:
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By David Ex
28th May 2021 10:16

Tax Dragon wrote:

Kylo Ren wrote:

Under these circumstances I understand that BPR would likely be available on death (correct me if I'm wrong here).

HMRC for one thinks you are wrong. See IHTM25278.

That’s embarrassing! I’d always assumed that the income tax treatment would have extended to having favourable IHT status.

Just as well I’m not offering my services for reward.

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