Zero-rating – converting a non-residential building

By Tolley
VAT_tax_img6

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Zero-rating – converting a non-residential building
  • Conditions
  • Dwellings created from more than one building
  • TOGC
  • Used as a dwelling
  • 10-year rule
  • Land
  • Mixed use developments

This guidance note provides an overview of the VAT treatment of non-residential buildings that are converted into residential buildings.

HMRC Notice 708 ; VCONST04000; VATA 1994, Sch 8, Group 5; De Voil Indirect Tax Service V4.234 (subscription sensitive)
Conditions

The supply can only be zero-rated if all of these conditions are satisfied:

VATA 1994, Sch 8, Group 5, Item 1
Condition 1 – must be a non-residential conversion

If the building meets the following conditions, the conversion may be liable to VAT at the zero rate if either:

VCONST04400; VATA 1994, Sch 8, Group 5, Notes 7–9
  • the building that is to be converted has never been used as a dwelling, number of dwellings or a relevant residential purpose
  • in the 10 years immediately before the sale or grant of a long lease, the property has not been used as a dwelling, number of dwellings or for a relevant residential purpose

and either:

  • the building is converted into a property that is designed as a dwelling or number of dwellings
  • the building is converted into a property that is intended to be used solely for a relevant residential purpose

See the Definition of dwelling, relevant residential and relevant charitable purpose guidance note for more information on what properties would be viewed as dwellings.

Condition 2 – it must not be converted into a holiday home

The sale or the long lease of the property that is designed as a dwelling cannot be zero-rated if the person acquiring the interest is not entitled to:

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