Holiday home owners in Cornwall could face inheritance tax bills after an appeal by HMRC.

The judgement of the Upper Tax Tribunal in the case of Mrs Pawson was announced on January 31.

This was concerned with whether a 25 per cent share of a holiday letting cottage in Suffolk was a share in an investment or not. If it was an investment, inheritance tax was liable on its value. If it was not an investment, then Business Property Relief would have meant no inheritance tax was payable on it.

The First Tier Tribunal found against HMRC and allowed the relief, but HMRC appealed to the Upper Tribunal. The case was heard in December last year, and it has been announced that they have agreed with HMRC that the holiday let was an investment, and that the inheritance tax must be paid.

James Bailey, the Tax Partner at Cornish accountants and tax advisers Robinson Reed Layton, called the decision "hugely important for owners of holiday cottages" and said owners of holiday lets will need to consider whether they can offer their guests sufficient services to tip the balance from investment to trading.

Adding: "In the Pawson case there were basic services like laundry and cleaning. Following the decision of the Upper Tribunal it is clear that much more will need to be offered to qualify as a business that is not mainly an investment in property.”