Sale of fractional interests in property
Fortyseven Park Street Ltd (“FPSL”) sold fractional interests (“FIs”) to purchasers (”Members”) in 47 Park Street in Mayfair (“47PS”). Akin to timeshare, FIs entitled the Member to certain occupancy rights and the rights / obligations that stemmed from those rights. MGRC Management Ltd (MGRC), which was separately registered for VAT, managed and administered 47PS and the Members paid an Annual Residence Fee (“ARF”) to MGRC for its services.
The question before the UT was whether the sale of the FIs was the exempt leasing or letting of immovable property under item 1 of Group 1 of Schedule 9 to the VAT Act 1994. The UT found that, consistent with case law – Esporta, RCI Europe, Kennemer Golf and Macdonald Resorts – FPSL was supplying a licence to occupy a residence at 47PS, which was accessible by means of the facility of the reservation system, and not simply access to a plan or some other inchoate right or opportunity as HMRC had argued.
Having reached this conclusion, the UT then had to consider whether the exceptions to the exemption took FPSL’s supply outside of the exemption. Insofar as material, item 1(d) carves out any supplies comprising the provision of certain accommodation in an establishment which is similar to an hotel, inn or boarding house, making that standard rated. In this respect, the FTT, on its reading of Blasi (46/95), had concluded that it is the duration of the stay which is the key factor and not the duration of the agreement under which the right to those stays is conferred and, therefore, as a Member’s experience each time they stay at 47PS is the same as at an hotel, the supply was a prepayment of hotel like accommodation, thereby taking it outside of the exemption. However, overturning this decision, the UT held that the Member obtains a right which not only endures but which can be sold, used as security or turned to account through the optional Rental Programme. In addition, there are financial obligations and risks, including payment of the ARF, that are alien to supplies of accommodation in the hotel sector. The supply by FPSL of the grant of the FIs was exempt as the letting of immovable property.
The UT noted that, if had to consider fiscal neutrality, it would have rejected FPSL’s submissions, as there is no basis for assimilating different types of supply – FIs and timeshare – on the basis that they take place in the same broad economic sector.
By focusing on the agreement and the rights of the Member, as opposed to the experience and length of individual stays, the UT has overturned the FTT’s conclusion. Such fractional interests are not the provision of relevant accommodation in a similar establishment to an hotel, which is excluded from the exemption.