April 29, 2021
Article
Whilst the hospitality sector has suffered because of Covid, and restrictions during lockdowns, many foresee a huge demand for staycations in the UK this and future summers.
Alongside increased demand, there has also been an alteration to permitted development rights. Additional days have been introduced where people can utilise land for temporary use for any purpose for 28 days without needing to apply for change of use – so the allowance is now 56 days.
We are seeing many clients making use of these additional days to capitalise on demand by putting campsites and glamping pods in place. Often these sit well next to a pre-existing diversification such as a farm shop, holiday let or wedding venue. Understanding the financial implications and the time commitments, which could put a strain on other areas of the business, is crucial to success.
Whilst campsites and glamping provide a lower cost of entry into a diversified activity, 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 breakfast 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 suggests 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 and 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, albeit lower rates currently apply. Therefore careful consideration is required to the VAT implications.
With more and more people using staycations for shorter breaks, an increased interest for sustainable holidays alongside the future 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. However, take advice and plan ahead first.
View the full copy of our spring edition of Rural Intelligence for Farms & Estates here.