Will members receive a windfall if they sell their club?
By Alistair Dunsmuir
In a recent issue of Golf Club Management, Alistair Dunsmuir reported that an overwhelming majority of Basingstoke Golf Club’s members had voted in favour of the site being available for bids from developers. This followed an announcement by the local council that it had been outlined as one of many greenfield sites that could be the location for several thousand new homes to be built by 2026. Following significant reader interest, Alistair asked me to discuss some of the VAT and tax issues that might impact on a club proposing to sell its site.
Many golf clubs are registered as Charitable Amateur Sports Clubs (CASCs) and have a favourable VAT and tax status; however, it is my understanding that Basingstoke is not a CASC and is a private members’ club operating through a limited company. A private members’ club that is not a CASC that is considering selling an asset – such as its site – would need to take professional advice in respect of the tax aspects of doing so. If a club is not a CASC and not a charity, it is likely to be subject to corporation tax on capital gains and, being a company, would be subject to corporation tax at the full rate, the gain arising on most site sales dwarfing the threshold for the lower rate of corporation tax.
Such a club would usually reinvest in a new site and the amount reinvested should be eligible to be deducted from the proceeds under what is called rollover relief. For example, if a gain was £50m and £20m was reinvested in a new site, the company would pay tax on £30m which, at the current rate of 26 per cent, which would be £7.8m. In practice, the calculations when rollover relief is involved are much more complex, but this example has simplified the situation. There are conditions covering rollover relief which, over the years, have caught people out, reinforcing the need to take professional advice before a transaction takes place.
As mentioned, some clubs are operated as charitable under HMRC’s CASC rules. If such a club were to consider selling its site, there are additional considerations that the committee should take into account. Under VAT law an eligible body, for example a CASC which operates a membership scheme and is non-profit making with non-distribution clauses in its constitution, would treat its supplies to members, such as green fees, as VAT exempt. If it wished to distribute some of the disposal proceeds to members, assuming that it can deal with the non-distribution clauses in its constitution, then such distribution, not being part of a winding up or dissolution, would breach the VAT exempt status and green fees would then become subject to VAT.
However, unlike a private members’ club, a CASC selling its site should be in a more attractive position. It should not have the gain subject to tax, as charities are not subject to capital gains tax. If a charity sells land that has been held as an asset, any gain will normally be a capital gain.
Section 256 of Taxation of Chargeable Gains Act 1992 provides an exemption for capital gains provided the gain is applied to charitable purposes only. However, if a contract for the sale of land includes a provision for the charity to share in future profits from the development of that land, any such profits received will not be exempt; they will be chargeable to tax as deemed income, and this applies equally to non-CASCs. If any of the proceeds of sale are distributed to members, the club would be in breach of the CASC rules by not applying them for charitable or sports purposes. As well as losing the exempt VAT status, the club would lose its capital gains tax exemption and render the gain taxable as mentioned earlier.
Having lost its CASC status, the other tax exemptions would also be lost such that trading profits, interest and income from land would all become taxable.
There is a third type of club, which is a proprietary club, that is a club that is owned by one or more individuals with a view to making profit. As a profit-making club, this would not be VAT exempt and would not have the tax exemptions that a CASC or charity would have.
A proprietary club would be subject to corporation / income tax on its gain and any share in future profits from the development of the land that was sold. As mentioned, the amount of the taxable profit could be reduced by any qualifying rollover relief.
Clearly, the committee or equivalent management of a club that is considering disposing of its site would be advised to consult a professional tax specialist so that it is aware of all the consequences. It may be possible to devise a different structure that is more tax efficient and meets more of the members’ objectives.
Clubs that are able to sell their existing site and acquire a new one are in a very attractive position, but before members start planning how to spend the money, the club should carefully consider their options and obligations under advice – although, it is not a bad problem to have.
Adrian Houstoun is a partner in the Kingston Smith sports group. The information contained in this article was accurate on its publication date
By Alistair Dunsmuir
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But what if the club is a non profit making organisation and is selling the land with a view to re-investing the whole of the proceeds back into the club with no distribution of assets to the members?
So who exactly earmarked this site and were they a member of any golf club themselves.
As the world population reaches a critical level that simply can not be sustained, species are going the way of the American Carrier Pigeon and Raphus cucullatus (Dodo). We all know the decline of bees and butterflies and what do we have – more housing estates – with too little parking, packed in tight to make money which goes overseas to tax havens.
Then there is all that rubbish to collect and recycle some – all going into the environment to strangle even more life from the dwindling wildlife.
Regarding the article in Golf Club Management about members of Basingstoke Golf Club voting to sell to a builder and move to another course, which would possibly earn them thousands of pounds each: I remember back in 1999 or 2000 all private members’ clubs were required to add a rule that if they dissolved they had to spend the money on another club otherwise if they did not add that rule they were ineligible for partially-exempt VAT. They could not distribute any profit among themselves.
Members may have voted without the full information and perhaps would not have done so had they not been eligible for any money. I asked Ed Hurley, manager of indirect tax at KPMG, and he said: “Basingstoke Golf Club wants to sell its existing site and acquire another site at which the club will be operated from in future.
“I understand that the club is intending to distribute any profits arising from this sale to its members.
“UK VAT law states that where an eligible body which operates a membership scheme, that is a non-profit making golf club with non-distribution clauses in its constitution, makes supplies of services closely linked with and essential to sport to its members, these services may qualify for VAT exemption.
“An eligible body for these purposes is defined as a non-profit making body which is precluded from distributing any profit it makes, unless the distribution is made to another non-profit making body. The law goes on to state that – as an exception – in the event of dissolution and winding up, the distribution of profits to members shall be disregarded for the purposes of determining whether the entity is an eligible body.
“Therefore a strict reading of the law implies that a distribution of profit by an eligible body to its membership in any circumstances other than in relation to its dissolution or winding up will mean that it is potentially not an eligible body and may therefore not qualify to exempt certain supplies of services which it makes to its members.
“Where a golf club distributes profits to its members in circumstances other than on its winding up or dissolution, regardless of what its constitution says, this may impact upon its status as an eligible body and its ability to exempt supplies to its members of services closely linked with, and essential to, sport.”
Martyn Senior
MGS Golf