• There are few areas of VAT law more complex, and yet more commonly applied, than the legislation applicable to property.
• Given the large figures often involved, there are also few areas of VAT where it is so expensive to get it wrong.
• So whether you are a landlord, a tenant, a developer, a contractor or a DIY house builder, it is essential to get the VAT treatment of your property correct.
• The default VAT position for transactions involving the grant of interests or rights over land or licences to occupy land is that they are exempt. Land in this context includes buildings etc.
• There are then a number of exceptions to this default position, as detailed on the following slides.
Land transactions – exceptions to exemption
• Zero-rating applies to the first grant of a major interest in:
o A dwelling or building for use for a relevant residential or charitable purpose;
o A dwelling converted from a non-residential building;
o A substantially reconstructed protected building.
• A major interest is the freehold or a lease for at least 21 years.
• A relevant residential purpose is use as a children’s home, nursing or residential care home, hospice, student or school accommodation, armed forces accommodation, monastery or nunnery etc.
• A relevant charitable purpose is use by a charity:
o for a non-business purpose (e.g. as a place of worship or for the collection of donations); or
o as a village hall etc in providing social or recreational facilities for a local community.
• A protected building is a listed building which is, or is intended to become, a dwelling or number of dwellings, or is intended for use for a relevant residential or charitable purpose.
• Substantial reconstruction involves the use of no more of an existing building than the external walls, and at least 60% of the work qualifying as ‘approved alterations’.
• Approved alterations are works for which planning permission is required.
• Standard-rating applies to the sale of the freehold interest in a new (less than 3 years since completion) or uncompleted non-residential and non-charitable building.
• Standard-rating also applies to the following supplies:
o Gaming and fishing rights
o Hotel accommodation
o Holiday accommodation
o Caravan & tent pitches and camping facilities
o Parking facilities
o Timber rights
o Storage & mooring of aircraft & ships etc
o Boxes, seats etc
o Sports facilities
o Options to purchase the above rights, interests etc.
• Supplies forming part of the transfer of a business as a going concern, which are outside the scope of VAT
• Supplies covered by an election to waive exemption (or option to tax), which become standard-rated.
Election to waive exemption
• The decision to elect must be recorded in writing and notified to HMRC within 30 days.
• The land to which the election relates must be clearly specified.
• Elections apply to all supplies in respect of the opted land.
• Elections are ineffective in respect of dwellings or buildings to be used for a relevant charitable purpose.
Landlord and tenant
• In general supplies between landlord and tenant will be exempt from VAT. Exceptions are as follows:
o Reverse premiums or rent-free periods directly linked to specific benefits supplied by tenant to landlord (e.g. carrying out building or refurbishment works or acting as anchor tenant), which are standard-rated.
o Inducement payments from tenant to a new tenant to take assignment of a lease – standard-rated.
o Payments for specific services (e.g. office services, use of fixtures and fittings, fuel and power etc.) are standard-rated.
o Any supply in respect of a non-domestic building where the invoicing party has elected to waive exemption.
• Zero-rating applies to the following supplies:
o The first grant of a major interest by a person constructing a building designed as a dwelling or number of dwellings.
o The first grant of a major interest by a person constructing a building intended for use for a relevant residential or charitable purpose.
o The first grant of a major interest by a person converting a building a non-residential building into a dwelling, a number of dwellings or a building for use for a relevant residential purpose.
• The default VAT position in respect of construction of new buildings and work to existing buildings is standard-rating, but there are exceptions, where zero-rating or the 5% reduced VAT rate apply.
• An important point is that where zero or reduced rating requires a certificate to the main contractor from the property owner, subcontractors must standard-rate their supplies to the main contractor.
Zero-rated construction industry supplies
• Supplies in the course of construction of new dwellings and buildings for relevant residential or charitable purposes.
• Supplies to housing associations converting non-residential to residential buildings.
• Approved alterations to protected buildings.
• Building materials and certain electrical goods incorporated into a building by a builder supplying any of the above services.
• Certain goods and services supplied to disabled persons.
• Approved alterations of protected buildings. Again certification is required to demonstrate that the customer confirms that the work undertaken represents approved alterations.
Zero-rating can apply to the conversion of a non-residential building into a dwelling, and to work closely connected with the approved alteration| (such as preparation or remedial work).
• The 5% reduced rate of VAT applies to the following supplies:
o Residential conversions which change the number of dwellings in a property;
o Renovation and alteration of buildings empty for more than 2 years;
o Installation of energy-saving materials and grant-funded installation of heating equipment or security goods;
o Installation of mobility aids for the elderly in domestic accommodation.
Do-it-Yourself House Builders
• This scheme allows those who undertake the construction, or conversion from a non-residential property, of their own dwelling to recover VAT on the main construction or conversion costs.
• It is vital to ensure that bought-in building services are properly charged to VAT, as only VAT properly charged can be recovered using this scheme.
Zero-rated construction industry supplies
• Services in the course of construction of a dwelling or building for a relevant residential or charitable purpose, together with building materials and certain electrical goods supplied by the person providing the services and incorporated into the building.
• Services to a housing association in the course of conversion of a non-residential building into a number of dwellings or a building for a relevant residential purpose. Certification is required.
Summary and Conclusion
• So if you are:
o A property developer;
o A business in the construction industry;
o A DIY house builder;
o A landlord or tenant; or
o The owner of a listed building
Contact Mark Simpson on:
• Telephone 0161 886 8062
• E-mail firstname.lastname@example.org
to discuss your property VAT issues and formulate a plan to deal with them.