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Passing The Torch: Succession Planning for Your Lodge and Caravan Park Business

AW Accountants

carava park accountant

What is the best way for park owners to pass on their park to the next generation? The combination of complex rules, family dynamics and difficult emotions mean that this decision is often put off, sometimes with expensive consequences.


The main tax considerations for passing your park on are capital gains tax and inheritance tax. One way that inheritance tax on death may be reduced or avoided by park owners is if the park gets business property relief, but this can be complex and HMRC has a history of challenging business property relief applications made by parks.


Our director at AW Accountants, Alex Westbury ACA outlines three things about property relief to consider when succession planning:



1. Who is the land owner?

Business property relief can protect 100% or 50% of the value of a business from an inheritance tax charge.


  • Full relief at 100% may be available to parks ran as individuals, sole traders, for partnership interests and for unquoted shares in a qualifying business including a private limited company.

  • Relief at 50% may be available on land, buildings, plant or machinery owned by a park owner in their own right but are used mainly for/by the business.


It is surprising to many park owners to learn that the very valuable land that a park rests on may not get the full relief. This could be the case if the park is run within a company, but the land on which the company operates is held in the park owner’s name. Another example is where mum and dad own the land on which the park operates, but mum dad and their children run the business itself.


HMRC have been known to be ruthless in applying the reduced rare of relief in these circumstances, making careful thought and pre-planning essential to park owners.



2. Is a gift of shares always tax free?


Full business property relief can be used for private family-run companies companies not quoted on the stock market.


It is important to be aware that not all company shares automatically secure business property relief from inheritance tax. It is important to consult a professional advisor with experience of the difficulties faced by park businesses for an in depth assessment of the criteria for qualifying relief to give you the best chance at the correct result.


Three criteria are usually relevant for parks:

  • the business must not be subject to a binding contract for sale

  • the park owner must have owned the business for 2 years before their death

  • the business must not consist wholly or mainly for the making or holding of investments

The trickiest of the criteria for park owners to qualify for is the last one: that the business must not be for investment. If HMRC considers the park business to be a primary investment business rather than a trading business, then business property relief will not be granted by HMRC.


There's no clear definition of 'investment' which has caused many parks to have their business property relief claims rejected.



3. How do I tell if my business is trading for the purposes of business property relief?


Many land owning park businesses seem to fall somewhere between the definitions of investment businesses and trading businesses, but HMRC makes a strict distinction with a harsh line. If a park business is deemed to comprise wholly or mainly of making or holding investments, then no business property relief will be available so the full value of the park may be liable to inheritance tax.


To decide if a park business is mainly trading, HMRC look at the business as a whole including the use of capital within the business, how turnover and profit are split between the trading and non-trading elements, and how the park owners and their partners, company directors and within the business.


The trading test: business accounts show that 51% of the park’s profit is generated by trading activities. If most of the park’s profit consistently comes from lodge or caravan sales and not from the value of the land used, then the park owner likely has a good chance at being classed as ‘trading’ for business property relief.


We have found that the biggest issue our clients face here is pitch fee income. This is because HMRC’s starting point is to treat pitch fee income as if it is rental income for the purposes of business property relief (i.e an investment activity).


The result is that if pitch fee income is more than that generated by the park’s trading activities (caravan or lodge sales, café, bar, restaurants, shops ect) then business property relief wouldn’t be readily available.


But, this is just HMRC’s starting point: it is important for the park owners that this applies to to review the services offered by their pitch fee. In some parks, there may be the opportunity to arrive and enjoy the breath taking scenery with minimal services or facilities provided in addition to the pitch. Other parks may offer all singing all dancing facilities with full recreational activities and entertainment as part of the pitch fee. Examples are entertainment, play areas, swimming pools, sports facilities and gyms, 24 hour security, toilets and washing facilities ect.


Where full services are provided as part of the pitch fee income, there is a better

chance of securing business property relief. In this case, it is important to review your sales materials and online content including your website to ensure that your description of services included as part of the pitch fee are clearly defined.


Final thoughts

Careful thought must be made when planning for the succession of your caravan and lodge parks. By considering the points in this article and starting discussions with your trusted advisors, you will have the basis of robust succession plans in place in no time.






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