UK Inheritance Tax Change Could Force Sale of Priority Pass — Private Equity Turns Airport Lounge Access Into Pay More, Get Less

Tax law changes in the U.K. could have worldwide consequences for airport lounges and points-earning. Starting April 6, family-owned private businesses are subject to U.K. inheritance tax above £2.5 million.

Specifically, Business Property Relief gets capped, with 100% relief only up to £2.5m (per person), with reduced relief above that (effective 20% inheritance tax on the excess if 50% relief applies).

When the 79-year old founder of Priority Pass, The Club lounges and partnership on Chase Sapphire lounges, and numerous other travel businesses like online shopping portals and card-linked merchant offers passes away the business will have to change control (e.g. get sold to private equity).

The Club at MSY

Or so suggests The Times, which runs an interesting piece on the Collinson business and the family dynamic. The lounge business “has about 1,500 clients around the world, including Visa, Amex and Mastercard, which pay membership and transaction fees as their customers use the lounges.”

At Heathrow, its My Lounge, No 1 and Clubrooms, are operated in a joint venture with Swissport. Around the world it owns and operates more than 85 of its own, with the others owned by other operators. Collinson tracks six million lounge visits a month, through its Priority Pass and LoungeKey Pass membership schemes. The usage figure is 60 per cent higher than 2019.

…Its Valuedynamx division runs ecommerce loyalty programmes for brands. It handled $1.4 billion in transactions last year, including for John Lewis.

The Club at CHS

So what does private equity look like in this context, seeking to squeeze more value out of the enterprise?

• Prices go up (not in ways consumers see it). Push to raise the per-visit fees paid by card issuers or tighten contract terms. Issuers then respond with visit caps, more guest fees, or higher card annual fees.

• Harsher capacity management. Private equity looks more at yield per seat-hour in the lounge. That creates pressure for strict time limits (e.g. 2–3 hours).

• More two-tier lounges where access is Priority Pass plus upsell. Base lounge access gets increasingly stripped down. Premium lounges, paid reservations, and add-ons for better food and beverage become common (taking elements that are now bundled and charging separately).

• Reduced operating spend in lounges. That means reduced staffing, reduced food and beverage quality and less replenishment of buffets, less cleaning, and longer maintenance refresh cycles.

• More crowded lounges. The ultimate constraint driving packed lounges is access and footprint. The ecosystem needs more capital investment, not less. And while private equity will promote its access to capital, a desire to limit expenditure and maximize short-term revenue and the ability to sell at a premium starves the network of capital, at the same time gating of lounges comes off because each entry is revenue (even if the lounge guest immediately walks out because of inabiltiy to find a seat).

• And what about merchant offers and shopping portals? Expect more breakage, more points getting lost (tracking issues) whether as a breakage strategy or due to underinvestment in the technology. Over time that may mean fewer customers lost to competitor ecosystems, but in the short run tends to improve financial performance, cleaning up the books to flip the business. It’s the classic example where the long-term focus of multi-generation family control is better both for the company and for consumers.

I’m not a U.K. tax expert by any stretch, but with £2 billion revenue and over £70 million pre-tax profit, I expect they can afford good lawyers. In the U.S. you do something like put ownership shares of the business into various trusts, with restrictions around only existing owners being able to own shares and exercise voting power without the ascent of other owners. Then you write down the value of the shares based on:

1. lack of control [due to minority stakes]
2. lack of marketability [due to the private nature of the shares], and
3. a block discount [it’s hard to sell large stakes in a large business for which there’s no liquid market].

Each of these cuts the value 40% – 50%, but the value snaps back once transferred to an existing owner. Very roughly speaking, it makes a $1 billion business worth $125 million.

Now, there are unique limits on transfers into trusts in a U.K. context that don’t apply in the U.S. And there’s a lot of nuance to how the trusts need to be structured. That’s why expensive attorneys are involved, this isn’t something you pull a form off Google or get ChatGPT to write. You also need trust purposes beyond tax-avoidance (but you need those in the U.S., too!). And you’re going to need to gradually transfer the assets.

It might be easier to move the family out of the U.K. and ownership in the company out of UK-incorporated entities, even with UK exit charges. Relatively little of their business is generated in Britain, Heathrow lounges and Virgin Red’s shopping portal notwithstanding.

I’ve had the pleasure of meeting Collinson founder Colin Evans on many occasions – he’s a genuinely good guy, and deserves all his success, and I can’t imagine anything more gratifying than having your children successfully drive forward your life’s work – or anything more gut-wrenching than having the state take that away from you.