[2009] UKFTT 257 (TC)


Appeal number LON/2008/2418

VAT – Zero-rating – Planning condition that building “be used for holiday accommodation only and for no other purpose” – Held that use for principal private residence excluded – VATA 1994, Sch 8, Grp 5, item 1, Note (13) – Appeal dismissed




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Sitting in public in London on 10 September 2009

Adam Spiers ACA, director, for the Appellant

David Anderson, of the Solicitor’s Office, for the Respondents




1.This is an appeal against a decision on 17 July 2008 that the Appellant was liable to VAT at the standard rather than the zero-rate on the first grant of 28 dwellings constructed by it at St Merryn, North Cornwall, pursuant to planning approval granted on 5 January 2006.

2.The initial appeal was against the decision in principle. Assessments were subsequently raised in respect of 09/08 for £23,680 and in respect of 12/08 for £24,351.06, being respectively 7/47ths of £159,000 and £163,500 consideration on the grant of 999 year leases and deposits. The Tribunal gave leave to appeal against the assessments and the appeals were thereupon consolidated. No further sales have been made pending the appeal. The other properties are currently being let as holiday accommodation for up to two weeks.

3.The Appellant contends that the sale proceeds and deposits fell to be zero-rated under Schedule 8, Group 5, item 1 of the VAT Act 1994 being for the first grant of buildings designed as dwellings.

4.Customs contend that the receipts were excluded from zero-rating by Note (13) to Group 5, which provides (so far as relevant),

“(13)The grant of an interest in, or in any part of -

(a)a building designed as a dwelling …

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 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.”

5.Customs relied on the conditions in the planning consent which was “for holiday accommodation only and for no other purpose” rather than on any terms of the leases which were not exhibited.

6.The decision and the assessments were on the footing that the grants were excluded from exemption under Schedule 9, Group 1, item 1 being the grant of an interest in holiday accommodation within (e) and Note (13) to Group 1.

7.The relevant parts of the planning consent were as follows:

“NORTH CORNWALL DISTRICT COUNCIL … HEREBY APPROVE permission for the development proposed in your application dated the 24 October 2005 in respect of land at : St Merryn Holiday Village … namely : Construction of 28 new 2 bedroom holiday homes with 52 week occupancy …

Approve subject to the following conditions and reasons …


2.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 …

Reason. The site is not within an area where residential development would normally be permitted, therefore any such use, other than the proposed holiday use, would be contrary to the policies of the Cornwall Structure Plan and the District Local Plan in respect of such development.”

The planning application itself was not produced.

8.Class C3 of the use classes is as follows:

“Use as a dwelling house (whether or not as a main residence) –

(a)by a single person or by people living together as a family, or

(b)by not more than 6 residents living together as a single household (including a household where care is provided for residents).”

9.Customs did not contend that the reference to 52 week occupancy in the application and the planning consent being a day or two days less than 365 or 366 days prevented residence throughout the year. The appeal was conducted on the footing that 52 weeks is the same as a year.

10.Mr Spiers contended that there was no legally enforceable condition in the planning consent which prevented residence throughout the year. He said that holiday use and use as a principal private residence were not mutually exclusive. Holiday homes were dwellings where occupation as a private residence throughout the year was not permitted, see paragraph 5.3 of Notice 709/3. If there was no prohibition on residence throughout the year, the dwellings were zero-rated. An owner could occupy a dwelling as a private residence throughout the year albeit as a holiday home; physical presence throughout was not needed, see Fox v Stirk [1970] 2 QB 463.

11.Zero-rating is excluded from Group 5 item 1 if either paragraph (i) or paragraph (ii) of Note (13) applies. Paragraph (ii) includes planning restrictions.

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.

14.Whereas there was no evidence as to the reasons for the policies in the Cornwall Structure Plan and the District Local Plan, it is clear beyond doubt that the consent was limited to holiday use and excluded other residential development. If the consent did not exclude residential use other than as holiday accommodation it seems to us that the conditions in the consent would have been devoid of any meaning. We are satisfied that the condition preventing use other than as holiday accommodation was legally enforceable. Although residence in the sense of occupancy throughout the year is not prohibited, such use is limited to use as holiday accommodation.

15.Mr Spiers complained at advice which he said that the Appellant had been given as to the application of Notice 709/3 and in particular paragraph 5.3 and pointed out that it referred to occupation as a “private residence” not “principal private residence”.

16.Mr Anderson accepted that the first sentence of paragraph 5.3 does not accord with Note (13)(i) and (ii).

17.Paragraph 5.3 reads,

“If you sell or lease new holiday accommodation that cannot be occupied throughout the year as a private residence, your supply is standard-rated.”

It does not refer to the grantee; however as a matter of language it must cover residence or use by the grantee. It appears that the words “that … private residence” were understood by the Appellant as laying down the test as to what is holiday accommodation.

18.The Tribunal is however concerned to apply the statute rather than Notice 709/3 and any alleged misdirection is outside our jurisdiction.

19.Mr Spiers relied on the Tribunal decisions in Livingstone Homes UK Ltd v Customs and Excise Commissioners (2000) Decision 16649 and Tallington Lakes Ltd v Customs and Excise Commissioners (2007) Decision 19972. The latter decision was reversed by the High Court at [2008] STC 2734. Livingstone Homes was disapproved in the later Tribunal decision in Loch Tay Highland Lodged Ltd v Customs and Excise Commissioners (2002) Decision 18785.

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).

21.The Appellant claimed and was given credit for the input tax incurred; this did not include the construction supplies to the Appellant which were zero-rated under item 2 of Group 5. No adjustment is therefore needed to the assessments. The appeal is dismissed and the assessments stand.

RELEASE DATE: 8 October 2009