The Court of Appeal (“COA”) has released an interesting decision in the case of Fortyseven Park Street Limited (“FPSL”) [2019]. This case concerned the supply of “fractional ownership interests” in a property and whether it was a VAT exempt (grant of an interest in land) or a “VATable” supply, in line with the provision of accommodation in a hotel or similar establishment.
The First-tier Tribunal (“FTT”) had ruled the supply was VATable as being the provision of accommodation in a hotel etc.
The Upper Tribunal (“UT”) allowed FPSL’s appeal and held that the supplies made were VAT exempt.
However, the Court of Appeal has now reversed the earlier UT decision and allowed HMRC’s appeal, such that the supplies made were VATable once again. This was on the basis that what was being supplied did not merely relate to passive activity typically made by landlords. Rather, services supplied fell to be VATable as being the provision of “hotel-type” services and they could not be regarded as an ancillary to the letting of land.
The appeal was allowed.
The background
Fortyseven Park Street Limited (“FPSL”) supplied individuals with the use of residences in Mayfair and the provision of certain access to related benefits. FPSL’s business was the sale of “fractional interests” in land.
The term “fractional interest” is taken to mean the share in the ownership of property. By way of an example, a large property may be too expensive to maintain by one owner, so instead of buying the whole property, a person may purchase a share of it along with four other people, becoming the owner of one fifth of the property. Each owner shares in the maintenance and they take turns in actually occupying the property.
The sale of such fractional interests was for a considerable sum. It provided the purchasers of these interests (“members”) with a discount on the commercial rate which they would pay had they been non-members. The members would obtain the right to occupy the residence for a maximum number of nights in a year (Primary Use Time) and would be entitled to access a wide range of related benefits in that period.
In addition, where the member wished to reserve up to a further 14 nights per year, this was available under the extended occupancy time and was subject to availability.
MGRC Management Ltd (“the Manager”) was responsible for the maintenance, management and administration of the property. The members were required to pay to the Manager, in addition to the initial sum, an Annual Residence Fee for a number of additional services such as a valet service, a concierge service, a daily maid service and luggage storage. Other additional services were available on request.
The question which was put to the FTT concerned the VAT liability of the “fractional interests” made by FPSL. The FTT ruled that this was a supply which fell within the land VAT exemption. However, it also concluded that the supply was of a type which fell within the exclusion to the VAT exemption, applicable to hotels etc. Therefore, VAT was payable at the standard rate.
The UT reversed this decision and held, as the FTT had ruled, that the supply fell within the land exemption. However, the difference was that the UT did not consider the supply was of relevant accommodation. Therefore, the VAT liability fell to be VAT exempt.
The decision
The decision reached by the COA was that, in line with the earlier courts, the supply fell within the land VAT exemption. However, an interesting take on this was that its decision looked to remove:
“…the letting of immovable property… out of the land exemption by the provision of other services (paragraph 25 refers).
It referred to an earlier decision of the CJEU, that of Luc Varenne. This case concerned a football stadium which considered VAT recovery related to a VAT exempt supply of facilities at the stadium. Under a contract reserving certain rights and prerogatives to the stadium owner, and providing for the supply by the owner of various services, (including services of maintenance, cleaning, repair and upgrading), it did not constitute, as a general rule, a ‘letting of immovable property’ for VAT purposes. The supply in this case fell to a VATable supply of services rather than a VAT exempt letting of immovable property.
Accordingly, the COA ruled that ordinarily the leasing or letting of immovable property is generally a passive activity linked simply to the passage of time and not generating any significant added value. FPSL provided more than a passive activity, adding significant value in terms of the “hotel-type” services which it provided.
Additionally, considering that VAT exemptions are to be construed narrowly, the COA held that this was not simply making the property available. It was doing something more which went beyond the exploitation of immovable property.
Therefore, it held that the supply was a VATable supply of services.
As it concluded in paragraph 49 of the judgement, this was not “simply the making available of property”, but prepayment for accommodation “in an environment similar to a hotel and with the services which can be expected … over a number of years”.
Who is potentially affected?
This is an important decision by the COA for anybody supplying fractional interests in properties with timeshare arrangements where VAT exemption has previously been applied. It aims to highlight the importance of seeking clarity in relation to property deals, as and when large values are at stake: small mistakes can prove costly.
In the event that you are likely to be affected, our VAT specialists would be happy to discuss the decision with you in further detail.
For more information, please get in touch with your usual BKL contact or use our enquiry form.
