For many park owners, the idea of passing the park on to the next generation is one which is very attractive to owners. Enabling the next generation to hone their skills while working in the park, safe in the knowledge that one day ‘All this will be theirs’. However, on death, should the park be deemed to be an investment entity and not that of a trading one, the taxman could take a chunky 40% of the park’s value through Inheritance Tax (I.H.T).
Many park owners will argue that the park is of course a trading entity but the classification between a trading entity and an investment entity is based purely upon the facts and the activities undertaken within the park
A park with a clubhouse, restaurant, sports facilities and multiple activities will invariably look much more like a trade whereas the park simply renting out sites will be classified as an investment.
With careful planning, changes may be able to be implemented in the park to add activities so that the park then qualifies as a trading entity to ensure the valuable Business Property Relief is obtained and the 40% I.H.T charge is mitigated.
These changes do need to be carefully considered to ensure the ambiance of the park has not been negatively affected. Some parks flourish due to the quiet atmosphere and the hands-off approach allowing the occupants to relax while on holiday.
Also, some of these trading activities may not be commercially viable and you certainly wouldn’t advise someone to start an unviable activity with the sole aim of mitigating a potential tax charge in the future.
The actions park owners take will vary wildly from owner to owner, depending upon the owners’ age and the needs and desires of the park’s occupants. Where changes can be implemented, these need to be undertaken with care and on a timely basis. For parks, where changes are not considered appropriate owners will, at least, be able to prepare and budget for the potential I.H.T bill.