Buildings and construction ― change in use of RRP and RCP buildings

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

  • Buildings and construction ― change in use of RRP and RCP buildings
  • When do the change in use rules apply?
  • Change in use ― buildings completed before 1 March 2011
  • Change in use ― buildings completed on or after 1 March 2011
  • When is a building completed for the purposes of a change in use?
  • Practical points in relation to changes in use

This guidance note describes the VAT implications of a change in use of certain buildings which have previously benefited from zero-rating.

Often in order to obtain benefit from zero-rating on supplies relating to the construction, conversion, sale or lease of a building, a customer has to issue its building contractor with a zero-rating certificate (for example, see the Construction ― zero-rating of construction services and Conversion ― reduced-rating conversions to different residential use guidance notes). Once the certificate has been issued, the contractor is then normally entitled to apply the VAT relief to its supply. These certificates are issued based on the assumption that a property will be used solely for relevant residential purposes (RRP) or relevant charitable purposes (RCP) (see the Buildings and construction ― definition of relevant residential purpose (RRP), Buildings and construction ― definition of a relevant charitable purpose (RCP) and Construction ― zero-rating of construction services guidance notes).

Broadly, if a certificated property ceases to be used for a ‘qualifying’ purpose within 10 years of completion then there is a ‘change in use’ and special VAT rules may apply. The detailed ‘change in use’ rules are explained in this guidance note.

VATA 1994, Sch 10, paras 35–39

In-depth commentary on the legislation and case law relating to the change of use charge can be found in De Voil Indirect Tax Service V3.248.

When do the change in use rules apply?

There are different rules for buildings completed before 1 March 2011 and those completed after 1 March 2011. These are considered in turn below.

Change in use ― buildings completed before 1 March 2011

For buildings completed before 1 March 2011, a ‘change in use’ occurs when there has been a ‘relevant zero-rated supply’ and

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