Residential development—VAT issues
Produced in partnership with Martin Scammell
Residential development—VAT issues

The following Tax guidance note Produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:

  • Residential development—VAT issues
  • Outright sale of new houses
  • Different types of residential development
  • Shorter leases and lettings
  • Planning gain and local infrastructure
  • Buyer incentives
  • Surplus land and uncompleted developments
  • Overriding leases and sales of reversions

This Practice Note is about the VAT issues that arise in residential developments. It covers:

  1. different types of development

  2. the implications of granting short leases

  3. planning gain and local infrastructure

  4. incentives offered to buyers

  5. disposals of surplus land and uncompleted developments, and

  6. issues with subsequent grants of overriding leases and sales of reversions

For VAT issues in commercial developments, see Practice Note: Commercial development—VAT issues.

Outright sale of new houses

Residential developments can involve a range of issues, and it is convenient to start with the most straightforward position before considering variations on it.

In this case, the developer:

  1. acquires land, on which it obtains planning permission

  2. constructs new houses on it, as family homes

  3. sells the houses and their plots outright on completion, and

  4. dedicates the whole of the rest of the site, such as roads, to the local authority

The construction of the houses will be zero-rated (see Practice Note: VAT treatment of building work), but the developer will incur VAT on fees, on some goods included in the development, and possibly on the land.

The sales of the houses will also be zero-rated (see Practice Note: Zero-rated sales and leases—person constructing a dwelling), so in principle the developer can recover whatever VAT it does incur.

It cannot, however, recover VAT on certain items such as white goods, carpets and bedroom