Commentary

V7.353 Partial exemption—input tax adjustments for change of intended use

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.353 Partial exemption—input tax adjustments for change of intended use

Part V7 Tax planning | Commentary

V7.353 Partial exemption—input tax adjustments for change of intended use

Consider the following two examples:

  1.  

    •     A building company builds a new house and intends to sell the freehold of the property once it has been completed. Such a sale would be zero-rated, so input tax of £20,000 incurred on building materials and professional fees can be fully reclaimed as it relates to an intended taxable supply. However, when the building is completed six months later, the company decides to rent the house to a tenant on a 15-year lease. The rental income paid by the tenant is an exempt supply for VAT purposes (and because the property is residential there is no scope to opt to tax).

  2.  

    •     A building company builds a new house and intends to rent it out to a tenant once the property has been completed. This is an exempt supply for VAT purposes, so input tax of £20,000 incurred on building materials and professional fees cannot be reclaimed as it relates to an intended exempt supply. However, when the building is completed six months later, the company receives an excellent offer from an individual who wants to purchase the freehold of the property, thereby creating a zero-rated (taxable) supply.

In the first example, the company is correct to reclaim input

To continue reading
View the latest version of this document, as well as thousands of others like it, sign in to TolleyLibrary or register for a free trial