It's the season to be glamping
Over the last few years, there has been a huge increase in the number of glamping sites, whether it is shepherd’s huts, bell tents, yurts or safari-tents and it now even has its own show, The Glamping Show. The popularity of glamping as a diversification option for farms continues to rise.
Many landowners are attracted to the lower cost of entry into a diversified activity on the farm to benefit from tourism in the local area. However, to achieve a high-value business, attracting rentals equivalent to cottages and hotels, a glamping site demands high-end quality and/or a unique experience and destination. This will come at a cost. Therefore, before embarking on an investment it is important to understand the market, the volume of demand, its value and competition and what the market demands to attract them to the proposed site. Consideration should also be given to the effect a glamping site would have on the rest of the business.
As with any diversification we recommend considering the structure the business should be run in and the tax consequences of the diversification. With public coming onto the farm it is important that the risk associated with this is considered and adequately insured. Further protection may be prudent by the use of a limited company or limited liability partnership, protecting the property assets outside of the glamping business.
With regard to the tax position, this largely depends on the type of glamping and the services provided with it. Therefore it would be judged on a case by case basis. Where the glamping is the letting out of holiday accommodation rather than the operation of trade the furnished holiday letting rules may apply. If breakfasts and other meals are provided the activity could be deemed to be a trade.
The holiday letting rules and trading rules would allow certain items to qualify for capital allowances, providing relief against profits. Where shepherds huts and other structures are being used for glamping case law would suggest these structures are the plant used in the operation of the trade rather than the setting in which the trade is carried on. The investment in the glamping structures should also qualify for capital gains tax rollover relief.
Rollover relief allows the deferral of a capital gain on the sale of assets into the reinvestment in new qualifying assets. Holdover relief should also apply if the land on which the glamping is run is gifted in the future.
However, the land will no longer qualify for agricultural property relief for inheritance tax (IHT) purposes. Therefore it is important to consider the impact of this. Planning could be put in place, using the appropriate business structure, to ensure the glamping activity forms part of a larger trading activity (such as farming) so that business property relief is available instead. This may result in there needing to be a trade-off between maximising IHT relief and minimising risk by keeping the glamping activity separate from the farming trade. Therefore other IHT planning may be required.
It is also important to bear in mind the VAT status of the glamping activity. James England discusses in his article VAT on furnished holiday lets, the requirement to charge VAT on the income if the income arises in a VAT registered business or if the business is run separately but the turnover exceeds the registration limit, currently £85,000. Whilst VAT registration would enable the VAT to be reclaimed on the glamping structures it effectively results in one-sixth of the income being lost to HMRC. Therefore careful consideration is required to the VAT implications.
The demand for unique glamping sites does not appear to have gone unnoticed by the larger scale holiday parks and hotels. This may be proof that glamping still has a long way to go to meet demand. With more and more people using staycations for shorter breaks, increasing interest for sustainability alongside the future prospect of payment for public goods, replacing the Basic Payment Scheme, it seems this could be a continuing growing market that many farming businesses would be in the right place to benefit from.