Is a 'fractional interest' in a property a holiday let?

A recent First-tier Tribunal decision, in the case of Fortyseven Park Street (the company), has concluded that the supply of a ’fractional interest in a property’ (similar to a time share), should be subject to VAT at the standard rate of 20%, on the basis that the supply is one of accommodation provided by a hotel or ’similar establishment’, a supply which is specifically excluded from exemption further to the VAT Act 1994, Schedule 9, Group 1, item 1(d).

The company, a subsidiary of Marriott Vacations Worldwide Corporation, owns a leasehold interest in a property in Park Lane, Mayfair, which it converted into 49 self-contained apartments.  It sold ‘fractional interests’ in the apartments to buyers who were entitled to exclusive occupation of the residence for up to 21 days each year until 2050. By signing up to the agreement, the buyers, known as members, were also entitled to a range of additional benefits including the ability to exchange stays at the property for stays in other properties within the Marriott hotel group, earn rental income from the apartment and receive discounted rates.
The company argued that the only supply it makes to the members is a grant of a license to occupy land, which is exempt from VAT.

HMRC argued that the company did not supply an exempt interest in land, but in fact made a taxable supply of the right to receive a bundle of benefits. In addition, HMRC argued that even if the company were to make a supply of an interest in land, it would be excluded from exemption on the basis that it should be treated as accommodation in a hotel or ’similar establishment’.

The decision
The First-tier Tribunal concluded that the member was paying for the right to occupy the apartment for a certain number of nights a year; the use of other programmes was optional and secondary. The supply was the letting of immoveable property which was excluded from the exemption as provision of accommodation by a ‘similar establishment’ to a hotel.

In recent years there has been an increase in alternative marketplaces for accommodation (such as Airbnb) that have changed the way in which accommodation is supplied. Therefore, many businesses run the risk of supplying accommodation in ways that do not necessarily relate to existing VAT legislation, and as such, any business which has entered into arrangements similar to the above should consult a professional in order to review its VAT position.

Given the complexity of this decision, and the amount of money at stake, it is likely that it will be appealed to the Upper Tribunal which should provide additional guidance.

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