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Julie Butler

In-House Counsel, Manchester Metropolitan University

'Glamping': A trade or furnished holiday accommodation

'Glamping': A trade or furnished holiday accommodation


With the rise of glamorous camping, Julie Butler considers the tax efficiency of farm diversification

With the rise of glamorous camping, Julie Butler considers the tax efficiency of farm diversification

'What is glamping?' It might come as a surprise to learn that the answer is the quite unusual portmanteau of glamour and camping taking place on a farm. The next question you might ask is: 'On what planet could any form of camping, especially on a farm, be glamorous?' Well, high-quality camping is glamorous in 2016.

Logic aside, glamping is a prosperous and popular form of farm diversification that raises some concerns, such as the tax efficiency of the treatment of equipment used etc. The first question must be as to what form of glamping is under consideration and this will help direct the tax treatment associated with the operation.

Camping with services

Many would argue that the very title of 'glamorous' indicates a good quality of service, although it could also indicate a glamorous location or combination thereof. Glamping can involve yurts, tipis, pods, bell tents, shepherds huts, gypsy caravans, tree houses, and a number of alternatives.

Glamping is considered to be camping with amenities and in some cases 'resort style' services. It is aimed at the luxuries of hotel accommodation but also combines escapism and the outdoors. Some glamping can be to provide the 'rich and the famous' with prestigious camping for English festivals away, but local to the festival sites, with butler and limousine transport service. Glamping is about sustainable, quasi-outdoor lodging that offers a comfortable experience on the farm.

Where such activity involves letting out holiday accommodation rather than operating a trade, the furnished holiday accommodation tax questions arise. It is reasonable, therefore, that the tax treatment must be assessed on a case-by-case basis with guidance from recent tribunals on general principles of service and what structures are provided. In many situations glamping involves extensive food service and regular fresh bed linen.

Bed and breakfast trade v FHL

The new business may amount to a bed-and-breakfast trade but, if it does not, it will need to be the letting of furnished holiday accommodation. This is deemed to be a trade by section 241 of the Taxation of Chargeable Gains Act 1992 (TCGA) (for UK furnished holiday lettings (FHL)) for the purposes of rollover relief, and a number of other capital gains tax purposes.

Are the structures that form part of the glamping operation, in fact, plant? Plant has been established to be the apparatus with which a person carries on their trade, rather than the setting in which the trade is carried on. The statutory inclusions and exclusions under sections 21 to 23 of the Capital Allowances Act 2001 will not apply for this purpose.

Section 241 of the TCGA deems the commercial letting of furnished holiday accommodation to be a trade for the purposes of sections 152 to 57 of the Act. The Finance Bill 1984 committee debate, when introducing the relief for furnished holiday lettings, made it clear that the new rules were intended to all commercial letting of holiday accommodation, including caravans, and that the term holiday accommodation goes much wider than holiday cottages.

The qualifying conditions for the relief to be due are that the lettings should be on a commercial basis and with a view to the realisation of profit, that the accommodation is furnished (section 323(2) and (3) of the Income Tax (Trading and Other Income) Act 2005) and that the minimum periods of availability and letting, set out in sections 324 to 326, are met.

Capital gains tax rollover relief

Some landowners might have sold paddocks or development land and be looking to rollover the gain into the glamping accommodation to help reduce the capital gains tax liability.

There is no reason why the cost of purchasing caravans or structures cannot qualify for relief if they are advertised for letting as soon as they are acquired, made ready for use, and the minimum periods of availability and occupation are met in the first 12 months and each tax year thereafter, once the letting has commenced.

The averaging provisions at section 326 and 326A may assist where those minimum periods are not met in some years but not all.

Glamping and trading income

It is considered that a well-run glamping operation where the focus is on services together with badges of trade being evidenced will be a trade. However, some clarity as to what is actually happening with the operation needs to be established.

The recent case of J Nott TC4897 considered the question of whether letting from holiday cottages was property or trading income. Such a case encompasses a lot of current HMRC focus on the status of property income and their aggressive approach to classify such income as being derived from property and not a trading activity.

On Mr Nott's 2009/10 tax return he showed income from holiday accommodation, music, and farming. The return was enquired into by HMRC and they concluded that the income from the holiday cottage was property income. Mr Nott appealed on the basis that his holiday accommodation operation was a trading activity and the losses should be offset sideways.

HMRC had confirmed that farming losses could be set against other income for class 4 NIC's purposes but the losses from the holiday cottage complex could not be offset against other income. This view was upheld by the tribunal. HMRC did question what was the activity giving rise to the income stream.

The questions to be asked were: What were the customers paying for? The use of the land or a package of services forming part of a trade? Emphasis was placed by the FTT on the level of any services offered by Mr Nott.

These are exactly the questions that have to be asked to ascertain the correct treatment of the glamping operation. Any farm that has diversified into glamping will have to ensure that the services are similar to a hotel if the income tax loss relief and the IHT relief are to be achieved. The inclusion of breakfast not as an option is a serious consideration to help with tax efficiency.

The conclusion in paragraph 85 of the decision states: 'Having considered the additional services provided by Mr Nott, we consider that, while extensive, they are not such as to 'change the whole picture' in the words of Lord Greene in Sywell Aerodrome. They are in large part consistent with the services normally provided by a landlord of furnished holiday accommodation.

'We agree with HMRC that the recreational facilities offered are in substance features intended to increase the attractiveness of the units for letting, rather than additional services. The breakfasts and daily cleaning which are offered for an additional fee are insufficient to change the profit derivation from the exploitation of property to a package of services comprising a trade.'

Exploitation of property or trade

The tax treatment of the whole operation must be considered 'in the round'. It must be established if the premises/mobile accommodation qualifies for capital allowances or if they qualify as assets which can be used for rollover relief.

The question of the nature of the trade versus accommodation must be considered for how the profit is shown on the tax return and whether losses can be offset sideways.

Emphasis will be on whether the additional services to make the camping glamorous are due to location and setting, e.g. swimming pool, or are due to services, such as daily cleaning, breakfast and other meals, or a fully stocked fridge.

The glamping brochures should evidence the special services over and above that of accommodation to qualify as a trade where appropriate.

Against the background of negative tax tribunal decisions for holiday accommodation, it is key for tax advisers to establish the exact nature of the operation and evidence the eligibility for tax relief.

Julie Butler FCA is the managing partner of Butler & Co Chartered Accountants and the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis)