Zero-rated sales and leases—person constructing a dwelling
Produced in partnership with Martin Scammell
Zero-rated sales and leases—person constructing a dwelling

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

  • Zero-rated sales and leases—person constructing a dwelling
  • Why does zero-rating matter?
  • Why might zero-rating not apply?
  • The conditions for zero-rating
  • What counts as a dwelling?
  • Person constructing
  • Construction
  • First grant of a major interest
  • Grounds and outbuildings
  • Furniture, carpets and white goods
  • more

This Practice Note is about the zero-rating of VAT for developers selling or leasing dwellings that they have constructed.

Why does zero-rating matter?

If the zero-rating does not apply, the transaction will usually be exempt, so that the developer cannot recover VAT (ie input tax) on costs, such as on fees and perhaps on the acquisition of the site. For more details, see Practice Note: When can a person recover VAT?

Construction services supplied in the course of construction of the dwelling will generally have been zero-rated anyway, see Practice Note: VAT treatment of building work. Where this is the case, a developer who did not incur VAT on the site acquisition might take the view that zero-rating of sales and leases is desirable, but not essential.

Why might zero-rating not apply?

The most common reasons are that:

  1. a lease is too short to qualify

  2. the works do not count as construction, or

  3. there are planning restrictions on the use of the dwelling

The conditions for zero-rating

The zero-rating covers:

‘The first grant by a person constructing a building designed as a dwelling or number of dwellings … of a major interest in, or in any part of, the building, dwelling or its site.’

So the zero-rating depends on:

  1. the building being designed as a dwelling or number of dwellings

  2. the