An expensive day for the Marriott Group (MG), they have lost their case at the Court of Appeal (CoA) related to granting timeshares in Mayfair.  MG had acquired a leasehold interest in a house in Mayfair and then refurbished the house and split it into many luxury apartments.  They then sold fractional interests in the apartments that would allow the buyers to stay in the apartments for 21+ nights a year until 2050.  The buyers were termed ‘members’ and were required to an annual membership fee to a manager and this manager would then provide hotel like services.  This manager was a different company within MG.

MG had considered the fractional interests as a supply of land and therefore exempt from VAT but HMRC disagreed with treatment considering that the fractional interests represented an advance payment for hotel services.  The First-tier tribunal agreed with HMRC but the Upper Tribunal (UT) sided with MG considering the that the service provided were ancillary to the occupation of land.

The CoA disagreed and reversed the UT’s decision.  The CoA found that the contract for services was provided via the company that granted the fractional interest, the buyers didn’t enter into contract with the manager directly, though this contractual point wasn’t determinative.  The marketing material for the fractional interests highlighted the high level of service that the buyers could expect and these services were marketed as being similar to that of a five star hotel.  The services were so involved that they made the whole supply one of hotel services rather than the passive occupation of real estate.

MG will likely have to suffer the VAT as a cost as it had already sold the timeshares before the case concluded and is unlikely to be able to increase the price the members have already paid, they were considerable sums, up to £243,000.  The impact of VAT could turn this venture from a profitable one to a loss making one.

The decision can be found at: Revenue And Customs v Fortyseven Park Street Ltd – Find case law (nationalarchives.gov.uk)

Please contact us if you have any question on VAT matters.  Determining what is exempt and what isn’t taxable can be a complex matter and with our deep experience we can provide valuable assistance.