Business Property Relief & Caravan Parks – an Introduction
It is true to say that the caravan park industry is a somewhat varied industry.
On the one-hand, we have rather sophisticated holiday and leisure parks which are more akin to Center Parcs than the traditional pitch at a touring caravan park.
Such a facility may have multiple swimming pools, a sports centre, playgrounds, soft play, pubs, clubs, restaurants, riding facilities and a fleets of both caravans for hire as well as side line in selling caravans and executive holiday lodges.
On the other hand, a caravan park may be little more than a maintained paddock with a a sprinkling of hard standing pitches and perhaps some connections to water and other utilities.
This article considers the availability of business property relief.
This could be a key issue for caravan park owners.
The nuances and wrinkles in this area can be seen from a quick glance at the disproportionately high percentage of Business Property Relief (BPR) cases involving this type of activity!
Of course, this body of case law is helpful in aiding our understanding of the relevant issues.
What is Business Property Relief?
It is safe to say that business property relief is a very attractive IHT relief.
It can essentially provide relief of 100% against Inheritance Tax (IHT) in relation to both lifetime gifts and also on the death estate.
See here for more details.
Not wholly or mainly making or holding investments
In order to qualify for the relief, it must be able to demonstrate that it is not one of ‘wholly or mainly making or holding investments’
Here, ‘wholly or mainly’ means 50%. So the business must be at least 50% trading. In determining whether this is achieved then the following factors need to be considered:
- Balance sheet / capital employed; and
- time spent by employees
The test is multi-factorial and each should be considered ‘in the round’.
The key case in this area is that of Farmer.
In addition, further guidance on the application of what are often referred to as the ‘Farmer Tests’ can be drawn from the Stedman case’. Although this was a residential caravan park – as opposed to a holiday park – the taxpayer won on the strength of the additional services that were charged to the customers rolled up as part of the pitch fee.
Another recent headline case was Pawson. Much was made of the case at the time (as in the first instance the First Tier Tax Tribunal has badly decided in the Taxpayers favour on the availability of BPR in respect of a single holiday letting). This was briefly helpful until it was unsurprisingly over-turned by the Upper Tier Tribunal. As a result, it has made little difference to the body of case and the factors discussed above.
More helpfully is the case of the Personal representatives of Graham v HMRC. More details can be found here.
Caravan Parks – Application of Case Law
Different activities will determine whether the business is one of trading or, alternatively, one of investment.
Examples of ‘trading’ activities usually are:
- Sales of caravans,
- Gas and electricity sales; and
- Provision of services to customers
Any part of the pitch fee which is rental element will generally be investment income.
In sum, this means that for holiday parks with a lot of activities – including pubs, clubs, swimming pools and shops – the argument that the business is one of trading is likely to have more chance of success.
Care needs to be taken as HMRC will, and often do, challenge claims for relief.
&We would therefore recommend that a Client reviews their position and, at the very least, knows where they stand. In other words, they definitely qualify, they definitely don’t qualify or whether they are somewhere in the middle.
If the business does not qualify then all is not lost. Other planning options, as they say, are available.
If you own a caravan park or have any queries about business property relief caravan parks then please do not hesitate to get in touch.
Business property relief caravan parks was last updated 12 November 2019.