Landlords of properties classed as furnished holiday lets are once again facing changes in tax treatment.

Their estates will now have to pay inheritance tax after a court ruled in HMRC’s favour.

A previous tribunal decision in the Pawson case confirmed that furnished holiday lets should not be considered an investment business for inheritance tax purposes.

This has now been overturned by a High Court judge sitting in the Upper Tier Tribunal. The taxman successfully argued that holiday lets should be categorised with other buy-to-let and rental property, so that it can charge inheritance tax on the owner’s death.

Stephen Barratt, private client director at accountants James Cowper, said: “It was accepted by all that the letting constituted a business. 

“The issue was whether or not it was ‘mainly’ an investment business. The judge agreed with HMRC that the activities of finding occupiers and maintaining the property outweighed the additional services and facilities. 

“The fact that the property was actively managed, as opposed to being passive, was not sufficient. Pawson’s estate had argued that by offering a cleaner, caretaker and gardener, they provided ‘services’ to holidaymakers, but once weighed in the balance these were held not to be enough.

“The previous ruling in the First Tier Tribunal surprised many, albeit pleasantly, because there was no clear evidence that the owner had provided significant additional services.

“In a sense we are back where we started with the same degree of uncertainty for those holiday let owners considering their IHT position. Relief from IHT remains theoretically possible but it will be difficult to achieve.”

Up until 2010/11, furnished holiday lettings were particularly attractive investments as they also allowed loss relief against other sources of income and gains, as well as qualifying for relief against inheritance tax. However, HMRC has been cracking the whip even before the latest case.

Reports suggest that the family in the Pawson case will go to the Court of Appeal. If so, they have only until the end of February.

A REPORT IN TODAYS ESTATE AGENT TODAY GIVES AN INTERESTING TAKE ON THE PRICE OF PROPERTY

According to Nationwide, property prices went up last month – or down.

The building society said that house prices had gone up 0.5% in January compared with December.

It also said that house prices had gone down, albeit by only £17 – from £162,262 to £162,245.

The answer to this small but vital disparity, lies of course in our old friend ‘seasonal adjustment’ (not to be confused with SAD, when you get depressed during winter).

Nationwide prefers the seasonally adjusted version of its own data, which had its chief economist Robert Gardner stating: “UK house prices increased by 0.5% in January, though prices were unchanged compared with January 2012.” 

He went on: “While activity in the housing market remains muted by historic standards, there have been tentative signs of a pick-up in activity in recent months.

“The Funding for Lending Scheme has achieved some success in bringing down mortgage rates, with some signs of a pick up in lending activity.”

A very good article in Letting Agents Today which is a must for all Residential Landlords

"

Court of Appeal to decide whether rent in advance is deposit

Tuesday 29th January 2013

The critical question of whether rent paid in advance is a tenant’s deposit is to be decided by the Court of Appeal.

The case of Johnson v Old is due before the Court in March after the tenant in the case decided to appeal.

In Johnson v Old, six months rent in advance had been paid by the tenant, along with a separate sum which was taken as a deposit and duly protected.

When the landlord sought possession of the property, the tenant argued that only part of the deposit had been registered as the rent taken in advance had constituted a deposit which had not been protected, and that the Section 21 Notice was therefore invalid.

The case was heard last January at Brighton County Court, which held that the advance rent was a deposit and that the Section 21 notice was invalid. Deputy District Judge Collins dismissed the landlord’s claim for possession and ordered the landlord to pay the tenant’s costs.

However, this judgment was overturned on an appeal last July, also in Brighton County Court, by His Honour J Simpkiss, who decided that advance rent was not a deposit. As a result, possession and costs were awarded to the landlord – and the lettings industry breathed a sigh of collective relief.

However, Shoosmiths, solicitors for the landlord, confirm that the tenant – who was refused leave to appeal at the last hearing – subsequently applied direct to the Court of Appeal, using the same arguments as before. The tenant was then given leave to appeal.

The case will now be determined by the Court of Appeal, due to sit on March 5 or 6. The judgment itself may not be released for some time afterwards.

Eamonn Hogan of Shoosmiths said that the central issue for the court will be to decide what constitutes a deposit and whether rent in advance is a deposit which should be protected.

He also revealed that the tenant is still living in the property concerned, although through agreement, and the landlord is receiving monthly payments.

The outcome of the case could also give implied or actual guidance as to the question of whether 'holding deposits' paid by tenants could also be deposits for the purposes of protection