The following Tax guidance note Produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:
This Practice Note is about the VAT issues that arise in residential developments. It covers:
different types of development
the implications of granting short leases
planning gain and local infrastructure
incentives offered to buyers
disposals of surplus land and uncompleted developments, and
issues with subsequent grants of overriding leases and sales of reversions
For VAT issues in commercial developments, see Practice Note: Commercial development—VAT issues.
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:
acquires land, on which it obtains planning permission
constructs new houses on it, as family homes
sells the houses and their plots outright on completion, and
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
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