In Fortyseven Park Street Limited v HMRC10, the FTT has dismissed a claim by the seller of fractional shares in luxury Mayfair apartments, that the sales were exempt lettings under Schedule 9, VATA 1994.
The appellant, a subsidiary of Marriott Vacations Worldwide Corporation, sold “fractional interests” in 49 self-contained luxury residences at 47 Park Street, Mayfair, London (the Property). In return for a substantial upfront price (ranging from £92,000 to £243,000, depending on the apartment’s size and “category”), a purchaser was entitled to exclusive occupation of the residence for up to 21 days each year until 2050. The purchaser also gained access to a range of related benefits during that period, such as the option to:
- exchange stays at the Property for stays in other properties within the Marriott hotel group
- realise rental income in respect of the apartment
- pay for up to 14 additional nights at a 35% discount on the “commercial” rate.
The terms of this arrangement were governed by a membership agreement, to which those who purchased a fractional interest were the “members”. Essentially, the arrangements formed a type of flexible timeshare plan.
Schedule 9, VATA 1994 comprises 16 groups of goods and services that are exempt from output VAT. “Group 1” is land, but item 1 lists a number of exceptions to that exemption, the exception in dispute in this case being item 1(d) of Group 1 (item 1(d)), which standard rates “the provision in an hotel, inn, boarding house or similar establishment of sleeping accommodation or of rooms which are provided in conjunction with sleeping accommodation or for the purposes of catering”.
The appellant argued that the only supply it made to a member in return for the purchase price was the grant of a licence to occupy land, which falls within the land exemption, such that no VAT was due. The supply was not, in its view, excluded from that exemption as the provision of “accommodation” in a “hotel, inn, boarding house or similar establishment” (under item 1(d)) or as the provision of “holiday accommodation” (under item 1(e)).
HMRC’s view was that VAT should be charged on the sale of fractional interests as the sale of the opportunity to obtain a right to occupy accommodation or, alternatively, that the sales were standard-rated supplies of “accommodation” in a “hotel … or similar establishment” under item 1(d).
The FTT rejected HMRC’s argument that the purchase price was for the opportunity to obtain a right to occupy accommodation, and concluded instead that the prices paid for the fractional interests were in return for licences to occupy land and were standard-rated supplies of “accommodation” in a “hotel … or similar establishment” within item 1(d).
Issue 1 – Whether the supply was an exempt supply of leasing and letting
The FTT considered that the fact that occupation of the property was conditional on reservation (and not automatic) did not detract from the economic reality of the arrangements that, having regard to the substantial price paid for an interest, the price was for the right to occupy. It was unrealistic to conclude, as HMRC sought to, that the price would be paid simply for the right to access the rights of membership. Consequently, the service was found to be a supply of the leasing or letting of immoveable property, notwithstanding the fact that members also became entitled to other specified benefits.
Issue 2 – Whether there was a supply of “accommodation” in “hotel … or similar establishment”
Although it acknowledged that this was a difficult issue, the FTT ultimately concluded that the provision of the apartments to members under their fractional ownership interests did fall within the exclusion in item 1(d). It considered that the annual period of occupation (rather than the long-term length of the licence) and the nature of the services provided to members and non-members alike made the accommodation similar in nature to that of a hotel and therefore it was standard-rated.
The recent rise of businesses such as Airbnb reflect a wider general interest in the variety of methods through which short-term to medium-term accommodation can be supplied. Given that the FTT acknowledged that it found certain aspects of the appeal difficult and the large sums involved, the appellant may seek to appeal the decision to the UT. If the decision is appealed, the UT will have an opportunity to provide helpful guidance on how to determine when supplies of leasing and letting are exempt and in respect of the distinction between supplies of accommodation in “hotels” and “similar establishments” and supplies of residences as “dwellings”.
A copy of the decision can be found here.