Usually not. Shares in a company whose business consists wholly or mainly of making or holding investments are excluded from business relief by section 105(3) of the Inheritance Tax Act 1984, and the tribunals have consistently treated letting property, however actively managed, as holding investments. Relief is available only where the business, looked at in the round, is mainly something else, such as a trade, hotel or caravan park whose services outweigh the rent.

Which rule shuts out property companies?

Section 105(3) of the Inheritance Tax Act 1984 (IHTA 1984) says that a business or interest in a business, or shares in or securities of a company, are not relevant business property if the business consists wholly or mainly of dealing in securities, stocks or shares, dealing in property, or making or holding investments. HMRC’s Inheritance Tax Manual says the investment limb is likely to be the main area of dispute (IHTM25261).

The exclusion has a knock on effect. Section 105(6) means premises owned personally and used by a company or partnership only qualify if the shares or partnership interest qualify. So if the occupying business fails the investment test, neither the shares nor the premises get relief (IHTM25274). The general conditions are covered in the guide to business relief; this page deals with the investment test.

Is letting property even a business?

HMRC applies two tests to letting cases (IHTM25271): first, whether the activities amount to a business at all for section 105(1)(a); second, if they do, whether relief is barred because the business is wholly or mainly holding investments. In practice HMRC often accepts there is a business and argues the second point, as it did in the leading cases.

Income tax treatment does not settle the question. In Powell (personal representatives of Pearce) v CIR (SpC 120) the Special Commissioner held that the income tax status of the business was irrelevant to inheritance tax (IHTM25272). A company paying corporation tax on property income, or a sole trader taxed on trading profits, still has to pass the inheritance tax test on its own terms.

Why does hard work not change the answer?

Many owners argue that they ran the lettings personally, full time, and so were not passive investors. The Special Commissioner rejected that argument in Martin and Horsfall (executors of Moore) v CIR (1995). Mrs Moore and her husband let industrial units on three year leases, did repairs and decorating themselves, found tenants and dealt with complaints. A business existed, but the Commissioner held that activities a landlord carries out because of the lease are incidents of the tenancy and sit on the holding investments side. Only services provided for gain and not required by the lease count on the other side (IHTM25275).

The same reasoning was applied to four furnished flats managed by agents in Burkinyoung v CIR (1995). The only income was rent, so the business was one of holding investments however onerous the landlord’s obligations were (IHTM25276). HMRC’s view, accepted in Moore, is that a business of holding investments can exist whether the landlord is actively involved or essentially passive (IHTM25273).

How is wholly or mainly tested?

HMRC looks at the main activities of the business, its assets and its sources of income or gains over a reasonable period before the transfer (IHTM25265). The leading authority is Farmer v IRC (SpC 216). A farm also let surplus buildings, and the lettings were more profitable than the farming. The Special Commissioner held that net profit was not the only or main test. Looking at the business in the round, including capital employed, time spent by employees and consultants and turnover, it was mainly farming, so relief was due on the whole business.

The Court of Appeal approved that approach in IRC v George (2003), describing a spectrum with investment at one end and trading at the other. The Upper Tribunal applied the same principles to a possible hybrid in HMRC v Brander (executor of the 4th Earl of Balfour) [2010] UKUT 300 (TCC), where the question was whether there was one mixed business or several separate ones.

Which property cases have failed and which have succeeded?

Case Property business Outcome
Moore (1995) Industrial units on three year leases Failed: active management still investment
Burkinyoung (1995) Four furnished flats on shorthold tenancies Failed: income was rent only
Weston (2000) Residential mobile home park Failed: pitch fees were the core, not caravan sales
McCall (2009) Grass let for grazing, about 100 hours’ work a year Failed: maintenance to earn a return from the fields
Pawson (2013) One holiday bungalow Failed: cleaning, welcome packs and being on call did not tip the balance
Zetland Settlement (2013) Commercial building let in units, with services Failed: actively managed but predominantly investment
Best (2014) Business centre company with optional services Failed: licence fees were about 70% to 75% of income
Green (2015) Five self catering units Failed: scale did not change the answer
Furness (1999) Caravan site with sales of caravans to residents Succeeded: profit from sales exceeded pitch rents
George (2003) Caravan park with sales, services, a club and storage Succeeded: holding property was not the main component
Farmer (1999) Farm with lettings of surplus buildings Succeeded: mainly farming

Sources: IHTM25265, IHTM25275, IHTM25276, IHTM25278, IHTM25279 and IHTM25280. HMRC notes that Special Commissioner and First tier Tribunal decisions are not binding precedents but can be persuasive (IHTM25275).

What about holiday lets, hotels and serviced accommodation?

HMRC’s view is that furnished holiday lets will generally not qualify, because the income is largely rent for occupation, though a case with an unusually high level of extra services must be judged on its facts (IHTM25278). Because Powell makes income tax treatment irrelevant, the end of the special income tax regime for furnished holiday lettings does not decide the inheritance tax question either way.

Hotels, bed and breakfasts and residential homes are different. HMRC accepts that section 105(3) will not usually apply because of the level of services, and tells caseworkers to pursue it only where it clearly applies, though budget hotels and accommodation for groups such as asylum seekers are examined on their facts (IHTM25277).

Do property developers and traders qualify?

Dealing in property is also excluded, but HMRC accepts that a genuine building and construction business holding houses or plots as trading stock is not caught. The focus is the business at the time of the transfer: a former house builder that has stopped building and is selling off its plots would not qualify (IHTM25266). Companies that both develop and hold lettings are tested under the wholly or mainly rule. The distinction is discussed further in property developer or investor.

What if a trading company also owns let property?

If a company is mainly trading and the lettings are part of one hybrid business, HMRC’s valuation manual says the let properties are not excepted assets, so relief covers the whole value (SVM111220). The position is worse if the lettings sit in a separate subsidiary: section 111 values the parent’s shares as if that investment subsidiary were not in the group. See business relief on holding company shares.

Illustration only.

Owen’s company runs a garage and lets six flats above neighbouring shops. Over the last three years the garage produced 70% of turnover, used most of the staff time and most of the capital, and the flats produced 30% of turnover but more net profit. On the Farmer approach the business is mainly a garage, so his shares may qualify in full, within his 100% relief allowance. If he moved the flats into a sister company with its own shareholders, those shares would get no relief.

What evidence will HMRC ask for?

In caravan park claims HMRC asks for accounts that split income and expenditure between investment and non investment activities, a precise list of services provided to residents, and the time spent by the owner, partners and employees on them (IHTM25279). The same evidence helps any mixed property business. Keep contemporaneous records of staff time, services charged separately and how capital is deployed, because the test looks at a reasonable period before the death or gift. For tax on the company’s own profits, see property investment company tax.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.