HMRC v Fortyseven Park Street

Background

Fortyseven Park Street Limited (FPS) sold 617 fractional interests (effectively timeshares) in one of its properties to customers. Customers paid an upfront fee and an annual residence fee, granting them access to use the properties for 21 days per annum up to the year 2050, with the option to extend. Stays were booked through a dedicated online booking service. The package also gave members access to a variety of added benefits, including:

• bed service, a daily maid service, a reception; and
  
  
• the option to sell or exchange occupation rights for nights in a Marriot hotel, realise rental income in the properties, and purchase up to 14 additional nights at a 35% discount rate.

FPS did not charge VAT on the sale of the fractional interests, claiming that the supplies fell within the VAT land exemption as a 'leasing or letting of immovable property.' HMRC disagreed, instead considering the supply to be akin to hotel accommodation and liable to UK VAT at the standard rate. The case was heard at the First Tier Tribunal and Upper Tribunal before reaching the CoA.

Does the transaction relate to the 'letting or leasing of immovable property'?

The CoA formulated a two stage test:

1. Did the fractional interests provide the right to occupy property as owner and 'to the exclusion of any other person?'


2. Is the supply for the use of the land or is the use of the land part of a wider supply of services: 

• do the services supplied involve 'merely a relatively passive activity' or a significant added value?
  
  
• do the services go beyond that which is purely ancillary to the property?

In answering the first question, the CoA made it clear that, although customers did not obtain an advance right to occupy an apartment, they still had a sufficient right to occupy. The CoA noted that ‘the condition that a reservation is made is not an impediment to access or use of a residence but served as a mechanism to exercise the right provided by the licence to occupy.'

On the second question, the CoA found the answer to be less clear cut. On balance, it concluded that FPS provided more than merely a passive activity through the various other services (bed service, reception, daily maid service etc.) supplied to customers by FPS's sister company.

The hotel-sector exclusion

The CoA also considered whether, if the supplies were capable of falling within the land exemption, it could still be excluded from the exemption. The CoA found that the exclusion could be interpreted widely, and the provision of concierge services combined with the short-stay nature of the reservations amounted to a supply of accommodation in an establishment similar to a hotel. Therefore had the court concluded that the supply fell within the land exemption, it would have allowed an appeal on the grounds that it fell under the exclusion to the exemption.

What does this mean for you?

The case is of interest for anyone supplying timeshare apartments, who previously treated the same as a VAT exempt supply of land. This decision makes it clear that the land exemption should be construed narrowly. Even where the supply falls under this narrow interpretation, the hotels exclusion could operate to bring in VAT liability. Suppliers should check how the key factors in this case (i.e. right to exclusive use, the provision of auxiliary services, duration of stay and services provided) compare to the timeshares they supply.

We regularly advise clients across the hotel sector on their operations and the associated tax risks. To find out more about how we can help, please do get in touch.