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Fractional Property Ownership Arrangement VAT-Exempt: UK's UT

by Robert Lee, Tax-News.com, London

14 February 2018


The Upper Tribunal (Tax and Chancery Chamber) ruled on February 12 that the grant of fractional ownership of suites in a luxury complex in London were not similar in nature to the supply of hotel accommodation and fall within the exemption provided for the leasing or letting of immovable property.

In the case – Fortyseven Park Street Limited (FPSL) v. HMRC ([2018] UKUT 0041 (TCC)) – the appellant, FPSL, a subsidiary company of Marriott Vacations Worldwide Corp., owned a 60-year lease on 47 Park Street in Mayfair, a property which had formerly been a hotel. In 2002, FPSL refurbished the property, creating 49 self-contained apartments, which were sold to buyers on a fractional ownership basis.

Following a challenge to the arrangement by HM Revenue and Customs, the First Tier Tribunal (FTT) decided that the supplies of the fractional interests in principle fell within the exemption from VAT provided for the leasing or letting of immovable property. However, it said that the arrangements should not benefit from the exemption because the grant of the fractional interests was for the provision of relevant accommodation in a similar establishment to a hotel.

The FTT dismissed the taxpayer's argument that, under the principle of fiscal neutrality, the supplies of the fractional interests should be treated in the same way as more traditional timeshare interests (that is, VAT exempt).

On appeal, the Upper Tribunal (UT) concurred with the FTT that the grant of the fractional interest was "a right to occupy a residence to the exclusion of others" and said the supply should be considered the "letting of immovable property," which is exempt from VAT.

The Upper Tribunal said the FTT erred in law in comparing the arrangement to hotel accommodation by focusing on the duration of the individual stays by a member under the fractional interest acquired from FPSL. "Consequently, the FTT failed to have proper regard to the nature of the supply made by FPSL, which is for a long-term right to occupy a residence rather than for a series of short-term stays," the UT said.

The Upper Tribunal also dismissed the argument that the supply of a fractional interest competes with supplies made in the hotel sector.

"It is not material that a member acquiring a fractional interest might otherwise have occupied a hotel room in a particular city or district. The same person might equally have taken a lease of an apartment, or purchased a second home," it said.

"The acquisition of a fractional interest is no more than one example of the alternative ways in which a person might choose to meet his or her accommodation needs. Those alternatives are not in competition with the provision of short-term accommodation in the hotel sector merely because they enable such a person to be accommodated for a short term otherwise than in an hotel," the UT concluded.

TAGS: tax | value added tax (VAT) | interest | law | United Kingdom | services | VAT goods & services classification | VAT case law | Tax

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