Caravan sites may present more problems in view of the variety
of facilities provided. They may range from land on which to park
caravans with minimal utilities laid on up to a full-scale holiday
camp where the recreational and social facilities are of primary
importance and the accommodation is only secondary.
A number of caravan site cases have now been heard by the
Courts and Tribunals, the most recent of which, Executors of
Stedman v IRC, was eventually decided in the Court of Appeal as IRC
v George (2003) EWCA 1763. This case was preceded into the Chancery
Division by Weston (Executor of Weston deceased) v CIR (2000) STC
1064.
In Furness v IRC (1999) SpC 202, although the caravan site
was licensed primarily for static vans, caravan rallies also took
place in summer and a high level of service was provided for those
using the site. More importantly, the static caravans were owned by
the residents who had to buy them from the partnership, could not
sublet them and had to sell them back to the partnership. The net
profit from the sales exceeded the net profit from the renting of
pitches and evidence was given that the proprietor had spent 80% of
his time on activities not connected with caravan sales. The
business was not comparable to that of a landlord owning a block of
flats. In Weston, the photographic evidence submitted to Lawrence
Collins J reminded him of a suburban housing estate in miniature.
The mobile homes did not have the appearance of caravans. They
looked much more like small bungalows. It was found from standing
back and looking at the matter in the round that the pitch fees
were not ancillary to the caravan sales but that if anything the
opposite applied. The business was one which consisted mainly of
holding investments.
Although the Weston approach was approved by the High Court
in George, that decision was overturned in the Court of Appeal,
which found in the taxpayers’ favour. The Court of Appeal
rejected the legalistic approach adopted in the High Court on the
strength of Weston in favour of the more general overview adopted
in Farmer v IRC (1999) STC (SCD) 321. This involved looking at the
business in the round and deciding whether the holding of property
as investment was the main component of the business. If it was
not, then the business was entitled to business relief.
The judgement in George is helpful in clarifying what is to
be regarded as either investment or non- investment activity. It
makes clear that the provision of services under the terms of a
pitch agreement is a non-investment activity. This means that in
cases where a large part of the business’s activities
(measured in both time and money) consists of providing services to
residents, we would be more likely to consider that the business
was neither wholly or mainly investment in nature. However, we need
to be satisfied that the figures for pitch fees, for instance, are
not artificially depressed in the accounts in favour of inflated
figures for wages or other non-investment expenses.
The judgement in George also recognises that the time and
money spent on maintaining amenity areas is in part designed to
maintain the value of the owner’s investment. It follows that
the taxpayers are entitled to return a reduced level of investment
income by offsetting against it part of the maintenance costs. As
this could lead to the net investment income being, proportionally,
a smaller part of the overall income of the business we might well
conclude in a particular case that the business was neither wholly
or mainly one of holding investments. On the other hand, we would
also need to take into account the time spent by the owner and/or
his employees in the maintenance work. When taken together with
other work carried out in the business, the evidence might lead us
to conclude that the majority of work done is involved in
maintaining the value of the owner’s investment. If so, then
we would seek to deny the claim under IHTA84/S105 (3).
The judgement in George also suggests that the holding of
land as an investment is separate and distinct from the service
element of the business. Finally, when looking at the facts
“in the round”, trading figures are only a part of the
overall picture.
When dealing with a claim for business relief on a caravan
park, you will need to obtain detailed business accounts, including
breakdowns of both the income and expenditure between the
investment and non- investment elements of the business. In
addition, you should ask the taxpayers to state precisely what
services were provided to the park residents and how long was spent
by the deceased (as park owner) and his partners and/or employees
providing those services.
After obtaining all the information, you should refer the
case to Technical Group.
