First-tier Tribunal (Tax)

[2011] UKFTT 21 (TC)

TC00898

Appeal numbers: TC/2009/10524, TC/2009/12743

LAND – new dwelling – whether planning restriction for use for holiday purposes only prevents use as the person principal private residence in Note (13) to Group 5 of Schedule 8 to the VAT Act 1994 – yes – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

DAVID TRATHEN (1) VAUGHAN GOODE (2) Appellants

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

- and -

MANGOGROVE LIMITED (in liquidation) Third party

TRIBUNAL: JOHN F AVERY JONES CBE (TRIBUNAL JUDGE) SHEILA WONG CHONG FRICS

Sitting in public at 45 Bedford Square, London WC1 on 6 December 2010

Brian Harvey, Brian Harvey Tax Consultant Limited, for the Appellants

Sarabjit Singh, coursel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.     These are appeals by Mr David Trathen and Mr Vaughan Goode as recipients of supplies of holiday accommodation made by Mangogrove Limited (in liquidation), which has been joined as a third party, against being charged VAT at the standard rate.  The Appellants were represented by Mr Brian Harvey, and the Respondents (“HMRC”) by Mr Sarabjit Singh.

2.     The issue in the appeals is whether the use of a building as the grantee’s principal private residence is prevented by a planning condition that “The development hereby permitted shall be used for holiday purposes only and shall not be used for permanent residential accommodation.”  If it is prevented, zero-rating of the grant by a person constructing a building of a major interest in the building does not apply and the supply is standard-rated.  The Appellants say it is not prevented, and HMRC says it is.

3.     We had witness statements from both the Appellants, the liquidator of Mangogrove Limited, Mr Elliot Green, and from Mr David Lobban who gave evidence in person.  There was no dispute about the facts which we find as follows:

(1)        The grant of outline planning permission dated 6 August 2004 on an application to demolish an existing hotel and erect 30 holiday apartments with 52 week occupation in a building known as Horizons in Newquay, Cornwall contained the following:

(a)        Under Reasons for Approval “The development of the site for holiday apartments is acceptable in principle and complies with the relevant Development Plan policies for tourism.”

(b)        Condition 9 reads:

“The development hereby permitted shall be used for holiday purposes only and shall not be used for permanent residential accommodation.

Reason.  The proposed development and site are not suitable for permanent residential occupation and to ensure the building is properly occupied as holiday accommodation in accordance with the Policy 34 and 63 of the Restormel Local Plan.”

(c)        Under the heading Informatives item 1 reads:

“The definition of ‘holiday purposes’ implies the accommodation should only be used for holiday accommodation throughout the year.  It may be regarded as unusual for an occupier to be on holiday in excess of 8 weeks a year.  The pattern of occupation for ‘holiday purposes’ is distinct from residential occupation.  For example, persons should not occupy the accommodation whilst they are employed in the area.  Also the Council would not expect occupiers to be registered with local services such as dentist, doctors or schools.  The accommodation should not be a person’s main or sole residence.  The payment of utility bills should indicate a pattern of occupation consistent with irregular occupation.”

(2)        The Restormel Local Plan has a heading Protecting Holiday Accommodation under which is Policy 63:

“Holiday accommodation must be provided in such a way that prevents it being used as full-time permanent dwellings.  The council will seek from potential developers a planning obligation to ensure that this policy is effective when new or upgraded accommodation is proposed.

7.92  There is a concern, borne out by recent applications, that by allowing the upgrading of holiday accommodation, it becomes suitable for year-round occupation.  This is fine as regards the holiday season but it can then lead to attempts to use such accommodation as normal housing.”

(3)        The development of the property was undertaken by Mangogrove Limited, which is now in liquidation as a result of the VAT debt in issue in these appeals, and has been joined as third party.  Where the use is restricted to holiday accommodation the local authority does not require the developer to contribute to open spaces or affordable housing.  The Appellant Mr Trathen initially purchased six apartments in order to encourage the bank to extend its facilities which he had guaranteed in order to complete the building work, and then purchased the remaining 10 unsold apartments when the construction company was unable to complete the work and it looked as if the bank might complete it and call on his guarantee.  The apartments are used in his letting business.  The Appellant Mr Goode purchased one apartment at a time when he was going through a divorce and thought he would need to live during the week in a flat above one of his hairdressing shops and use the apartment in question for weekends and holidays.

(4)        Mr Lobban purported to be an expert witness but failed to disclose that Mr Trathen was his client and so cannot be counted as an independent expert.  However, he gave useful background evidence about the planning conditions in Cornwall.

(5)        Mr Harvey put forward several examples to the Cornwall Council asking whether Condition 9 applied and their reply showed that they equated “not used for permanent residential occupation” with not being the person’s primary residence.

4.     Item 1 of Group 5 of Schedule 8 to the VAT Act 1994 zero-rates:

The first grant by a person—

(a) constructing a building—

(i) designed as a dwelling or number of dwellings; or

(ii) intended for use solely for a relevant residential or a relevant charitable purpose; or

(b) converting a non-residential building or a non-residential part of a building into a building designed as a dwelling or number of dwellings or a building intended for use solely for a relevant residential purpose,

of a major interest in, or in any part of, the building, dwelling or its site.

Note (13) provides:

The grant of an interest in, or in any part of—

(a) a building designed as a dwelling or number of dwellings; or

(b) the site of such a building,

is not within item 1 if—

(i) the interest granted is such that the grantee is not entitled to reside in the building or part, throughout the year; or

(ii) residence there throughout the year, or the use of the building or part as the grantee's principal private residence, is prevented by the terms of a covenant, statutory planning consent or similar permission.

These appeals are concerned with the application of the words italicised in (ii) of Note (13).

5.     Mr Harvey contends that there is nothing inconsistent about use for holiday purposes being use as the person’s principal private residence.  The latter depends on the quality of use rather than purely the time spent, which is the criterion for being “permanent residential occupation.”  He relied on Frost v Feltham [1981] STC 115 in which General Commissioners had decided that the licensee of a public house in Essex occupying the public house as a licensee terminable on 12 months’ notice who owned a house in Wales which he visited for a few days every month had his main residence (for mortgage interest relief purposes) at the house in Wales.  Their decision was upheld by the High Court as a finding of fact that the General Commissioners were entitled to make.

6.     Mr Singh contends that use “for holiday purposes only” prevented use for any other purpose including therefore use as a principal private residence, as was clear from the second part of the condition “and shall not be used for permanent residential accommodation.”  He contended that Frost v Feltham was concerned only with which residence was the main one.

7.     Looking at the issue in principle, the Appellants’ contention involves finding a case where an apartment is used for holiday purposes only but is also the person’s principal private residence.  Assuming that one can exclude the possibility of permanent holidays, which seem to be a contradiction, use of the apartment for the purpose of holidays must imply that when the person is not on holiday he has another residence where he resides when not using the holiday apartment.  This suggests that the other residence is likely to be the person’s principal private residence (in Note (13)) or the person’s “permanent residential accommodation” (in Condition 9 of the planning permission), so that our initial view is that circumstances of the Appellants’ contention cannot exist.

8.     The issue has been before the Tribunal in several cases.  Starting from the most recent, Herling Limited (2009) TC 00205 [2009] UKFTT 257 (TC), the planning restriction was “The development hereby permitted shall be used for holiday accommodation only and for no other purpose including any other purpose in Class C3 of the Schedule to the Town and Country Planning (Use Classes) Order 1987 [Class C3 is use as a dwelling house whether or not as a main residence) either by a single person, a family or not more than 6 people living as a single household].  This was therefore a restriction that it should be used for holiday accommodation only and for no other residential purpose.  The Tribunal held:

“12. The planning consent was in terms limited to use “for holiday accommodation only and for no other purpose including any other purpose in Class C3”. This clearly excluded use as a dwelling house other than for holiday accommodation.  Any doubt that use as a principal private residence was intended to be excluded is removed by the Reason given on the planning consent, namely that it was not in an area where residential development would normally be permitted.

13. Whereas holiday use and use as a private residence are not necessarily mutually exclusive since a holiday home maybe a residence, we do not consider that a holiday home can be a principal residence.  Whereas a person may spend his holidays at that person’s principal residence that does not make it holiday accommodation.  The concept of holiday accommodation in our judgment envisages accommodation which is not a principal residence, albeit that its use may be sufficiently substantial to make it a secondary residence.

…

20. We have no hesitation in concluding that the use of the buildings as the principal private residence of the grantees is prevented by the terms of the planning consent because the consent prevents the use of the accommodation by anyone other than for holiday accommodation.  Zero-rating is there excluded by Note (13).”

Accordingly the Tribunal decided that holiday accommodation was used in distinction to principal residence.

9.     Secondly, Loch Tay Highland Lodges Limited (2001) VAT Decision 18785, in which the restriction was “The lodges shall be used solely for holiday accommodation and shall not be occupied as the sole or main residence of any occupant.”  The Tribunal held:

“Under the planning condition, the only use that can be made of the lodge is for holiday accommodation.  That is what the first part of condition 4 says and must mean that whoever uses the lodge they must do so as holiday accommodation.  That first part of itself, excludes any other use.  Other uses would include use as the grantee’s principal private residence.  The second part of condition 4 excludes occupation of the lodge by the grantee or anyone else as the sole or main residence of the occupant.  The clause in the Feu Disposition quoted in the findings-in-fact, likewise requires the lodge to be used and occupied solely as a holiday dwellinghouse and for no other purpose.  It, therefore also excludes use and occupation by the grantee and any person occupying with his authority, as the principal private dwelling house of that person.  We consider that there is no material difference between “sole or main residence” and the statutory phrase “principal private residence”.  Neither party suggested there was.

Having identified the conditions of occupation and use imposed by the planning condition and the feuing condition, we return to Note 13 and ask ourselves three questions.  … Second, is residence at the lodge throughout the year prevented by the terms of the planning condition?  Third, is the use of the lodge or part of it as the grantee’s principal private residence prevented by the terms of the planning condition?  … As to the second question, it also seems clear that the planning condition is intended generally to prohibit long term residential occupation.  If the clause in the Feu Disposition falls within the meaning of “covenant” then the same considerations apply.  The use of the word “solely” in each condition and the second part of the planning condition put this beyond doubt.  Accordingly, the answer to the second question is the whole year would be permitted.  Accordingly, branch (i) of Note 13 applies and the supply of the lodges does not fall within Item 1.  Zero rating is excluded and standard rating applies.  As to the second question, it also seems clear that the planning condition is intended generally to prohibit long term residential occupation.  If the clause in the Feu Disposition falls within the meaning of “covenant” then the same considerations apply.  The use of the word “solely” in each condition and the second part of the planning condition put this beyond doubt.  Accordingly, the answer to the second question is Yes, residence at the lodge throughout the year by the grantee is prevented by the terms of the planning condition (and the feudal condition).  Residence on holiday is not prevented as such but such residence would not endure throughout the year, year in year out.  In these circumstances, Note 13(ii) applies to exclude the supplies from zero rating under Item 1 of Group 5 of Schedule 8 to the 1994 Act.  As to the third question, we reach the same conclusion for essentially the same reasons.  The conditions only allow holiday occupation and exclude occupation as one’s principal private residence.”

Accordingly the Tribunal decided that holiday accommodation was used in distinction to main residence or principal private residence.

10.  Thirdly, Livingstone Homes UK Limited (2000) VAT Decision 16649 in which the restriction was “all homes on the development shall be used as Holiday Dwelling Houses only and for no other purpose.”  Contrary to the other two decisions the Tribunal found that the restriction did not prevent use as the owner’s principal private residence, saying:

“We find that there is nothing in the condition attached to the supply by the Appellants, which restricts the use by the grantee of the holiday dwelling house as a principal private residence.  It appears to the Tribunal that any grantee could be supplied with one of these holiday dwelling houses and could use it as his principal private residence without challenge.  The two states of use, namely as a holiday dwelling house or as a grantee’s principal private residence are not in our view mutually excluded and they are not in our view incompatible.”

11.  We consider that the first and second of these is to be preferred and coincide with our initial view.  We regard Livingstone as illogical since it gives no effect to the words “only and for no other purpose,” since all purposes other than holiday use are excluded, and one such purpose must be residence when not on holiday.

12.  A number of examples of possible examples where holiday accommodation might be a principal private residence were put forward in Livingsone and also considered in Loch Tay about which the latter Tribunal said:

“a) Oil rig worker working two weeks on and two weeks off and residing at a lodge during his two weeks off.  In our view, the oil rig worker is not on holiday during the two weeks off.  He is not occupying the lodge as a holiday house but as his principal private residence.  That use is expressly prohibited by the planning and feuing conditions.

b) Soldier living in barracks retaining the lodge as his principal private dwellinghouse, where he resides on leave.  We consider that this too would infringe the planning and feuing conditions because use as sole or main residence is expressly prohibited.

c) a teacher from another EC country employed by the local school and occupying the lodge during term time. Here the teacher is not on holiday and is not using or occupying the lodge solely as holiday accommodation.  The planning and feuing conditions would be infringed.

d) An author from England who uses the lodge for long spells during the year as a place to write.  This is no different from c) above.

e) All year round occupation by a retired couple.  This is not occupation as holiday accommodation. If a holiday is a day on which work is suspended, then such occupation is not occupation on holiday. For a retired person, work is not suspended but terminated.  As soon as a person retires, his home does not suddenly become holiday accommodation. If a retired couple resided permanently at one of the lodges, they would be in breach of the planning and feuing conditions because this would amount to use of the lodge as and only as a principal private residence, which is a use prohibited by the planning and feuing conditions.  It is use for a purpose other than holiday accommodation.  It is occupation and use other than as a holiday dwellinghouse.”

We agree with these.  The only other example we can think of is where the person had an entirely peripatetic work pattern constantly visiting sites throughout the country staying in hotels or bed and breakfast establishments including at weekends as he was too far to travel home, and owning only a holiday home where he spent holidays.  He would have no other residences and the holiday home might be the person’s principal private residence (in Note (13)) and not be permanent residential accommodation (in Condition 9).  We would regard the possibility of such an example existing as de minimis and would ignore it.

13.  Accordingly we dismiss the appeals.

14.  This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN F AVERY JONES

TRIBUNAL JUDGE

RELEASE DATE: 21 December 2010