Zero-rated sales and leases—person converting a non-residential building
Produced in partnership with Martin Scammell

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

  • Zero-rated sales and leases—person converting a non-residential building
  • Why does zero-rating matter?
  • Why might zero-rating not apply?
  • The conditions for zero-rating
  • Use after conversion–what counts as a dwelling?
  • Use after conversion–what counts as for a relevant residential purpose (RRP)?
  • Previous use–non-residential
  • Neither designed nor adapted
  • Ten-year rule
  • Complications with parts of buildings
  • More...

Zero-rated sales and leases—person converting a non-residential building

This Practice Note is about the zero-rating of VAT for developers selling or leasing non-residential buildings that they have converted for residential use—as dwellings or for a relevant residential purpose.

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 the conversion of the building, fees and perhaps on the acquisition of the property. For more details, see Practice Note: When can a person recover VAT?

VAT is not recoverable if it should not have been charged in the first place. If the conversion is to a dwelling, the conversion work will usually have been subject to VAT at 5%, or zero-rated if commissioned by a housing association (see Practice Note: VAT treatment of building work). A claim for VAT at 20% may be blocked or restricted, so the developer needs to ensure that these reliefs are fully used.

Why might zero-rating not apply?

For conversions to dwellings, the most common reasons are that:

  1. there are planning restrictions on the use of the new dwelling (see below), or

  2. the new dwelling, or part of it, was previously in residential use, or used for garaging

For conversions for a relevant residential purpose, the most common reasons are that:

  1. the intended use does not

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