VAT and Property
Land and Property are areas of complex VAT issues where we regularly advise on and would encourage clients to contact us with any relevant query. Often aspects can appear to be fairly minor points to consider at first but can then actually evolve into more significant points if not managed correctly. Recent examples of such issues are noted below.
1. Zero rating on new flats
Serviced flats/apartments are becoming more and more popular and there is an important distinction to be made in order to treat the onward supplies correctly for VAT. Zero rating may be achieved on the disposal when certain conditions are met, but care must be taken in instances where the buyer intends to use the property as holiday accommodation or serviced flats, as this may remove the Zero Rating liability with VAT then being due on the sale.
2. Transfer of a business as a going concern (TOGC)
When a building is transferred as part of a TOGC with an option to tax, there is a specific section of law that needs to be considered, this is the disapplication rules (Article 5(2) of the VAT (Special Provisions) Order). This is vital to review and understand from both sides the seller and the buyer particularly when the buyer is partly exempt and intends to occupy part of the newly acquired building themselves. Failure to consider this aspect could be regarded as a reckless action by the buyer and could expose them to a criminal rather than a civil penalty if a TOGC treatment for VAT is applied in incorrect circumstances.
3. “New dwelling” definition
HMRC are showing particular interest in the application of Note 2 in Group 5 Schedule 8 VATA 1994 and particularly note 2 (c) of that section VAT legislation when it comes to applying the zero rate of VAT to newly constructed dwellings. This note places conditions on what can be regarded as a dwelling for VAT purposes. It has the potential to cause a VAT concern for sectors including housing associations, university and residential care providers but could equally need consideration for any residential accommodation project.
For reference, Note 2 in Group 5 Schedule 8 VATA 1994 defines “designed as a dwelling” as follows:
(a) The dwelling consists of self-contained living accommodation;
(b) There is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
(c) The separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and
(d) Statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.
Please contact firstname.lastname@example.org if you or your business is affected by any of the above, or if you would like to discuss these points in further detail.