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HMRC internal manual

VAT Construction

Zero-rating major interest grants in buildings: major interest grants: licences to occupy land

Any case where it is claimed that a licence (or similar arrangement) to occupy land of 21 years or more constitutes a ‘major interest’ should be referred to the Land and Property Unit of Expertise with full details including a copy of the licence agreement.

In American Real Estate (Scotland) Ltd ((1980) VATTR 88), a case involving Scottish land law, the appellant erected houses on an estate and sold certificates entitling the holder to occupy a house at particular periods of the year. A club was established, membership of which was limited to certificate holders. When the certificate was issued the house was conveyed to a bank under a Deed, the terms of which appointed the bank as trustee of the houses for the club and its members. The Tribunal decided that the issue of the certificates, which entitled the holder to no more than a right to occupy a house, did not amount to the grant of a ‘major interest’. They stated:

The Club and its whole membership pro indiviso had the beneficial interest in the totality of the heritable property held by the bank on their behalf. Only they could dispose of the property. The holder of a holiday certificate, while he no doubt enjoyed most of the rights of ownership, albeit restricted as to time, in the individual property he occupied, had, it seems too us, no heritable right therein. He could not, for example, create a heritable security over the said property, his rights therein being purely personal. We consider that the Appellants did not grant a major interest to the holders of the certificates…