Thousands of UK holiday home owners who let their properties could now be hit with big inheritance tax bills after a landmark ruling allowing them relief was quashed by a tribunal.
Those hoping to leave behind a substantial nest-egg for their children will be hit by a ruling by the Upper Tribunal that means they will no longer be able to claim business property relief on their furnished holiday lets.
There are currently around 65,000 owners of such properties, and claiming the relief would exempt them from up to 100 per cent inheritance tax.
But yesterday's ruling means that holiday homes will be treated the same as other assets and will count towards a person's estate on death. Inheritance tax of 40 per cent is due on assets exceeding £325,000, a threshold that should stay the same until at least April 2015.
The latest decision reverses a tribunal ruling from last year which favoured holiday home owners. The case of HMRC v Pawson - judges found that holiday lets should be considered investments for tax purposes in the same way as other investment or rental properties.
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The Financial Times said this was expected to open the door to a flood of claimants, but that Thursday's decision has reversed this.
The tribunal found that there was no clear evidence that the holiday home owner in question, Nicolette Pawson, had 'substantial involvement' in managing the property in Fairhaven, Sussex, for holiday makers.
Now, only those who are considered to be providing a substantial amount of services to holiday makers will be eligible for the business property relief on their holiday lets.