Sale or grant of a long lease ― zero-rating for newly constructed buildings

By Tolley
Sale or grant of a long lease ― zero-rating for newly constructed buildings

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

  • Sale or grant of a long lease ― zero-rating for newly constructed buildings
  • When can the sale / grant of a lease in newly constructed buildings be zero-rated?
  • What is an eligible property in this context?
  • Is an eligible property being constructed?
  • Is there a grant of a ‘major interest’?
  • Is the grant the first grant of a major interest?
  • Does the person making the grant have ‘person constructing status’?
  • When is a building a holiday home?
  • What is the special rule for tenancies?
  • When is a certificate required in order to zero-rate the sale / grant of a lease?
  • What happens if only part of a building qualifies for zero-rating?
  • How do the rules apply to land, garages and partly constructed buildings?
  • Granting a major interest to a connected person
  • Practical points ― selling / granting leases in newly constructed buildings

This guidance note sets out when zero-rating can apply to the sale or grant of a long lease in newly constructed buildings.

For an overview of the liability of supplies of land more broadly, see the Overview of VAT and property issues guidance note.

Detailed commentary on the legislation and case law can be found in De Voil Indirect Tax Service V4.233.

When can the sale / grant of a lease in newly constructed buildings be zero-rated?

Zero-rating can apply where the following conditions are met:

  • the sale is of an eligible property
  • the eligible property is being constructed
  • there is a grant of a ‘major interest’
  • the grant is the first grant of a major interest
  • the person making the grant has ‘person constructing status’
  • the building is not a ‘holiday home’
  • if the grant is a tenancy, the payment is a premium or the first payment of rent
  • if appropriate, a zero-rating certificate has been issued to the supplier

VCONST03100; VATA 1994, Sch 8, Group 5

These conditions are considered further in this guidance note.

What is an eligible property in this context?

The types of property covered by this zero-rating are:

  • a building designed as a dwelling or a number of dwellings
  • a building intended for use solely for a relevant residential purpose (RRP)
  • a building intended for use solely for a relevant charitable purpose (RCP)

VATA 1994, Sch 8, Group 5, Item 1

What is a building designed as a dwelling or a number of dwellings?

For commentary on the meaning of ‘dwelling’ in this context, see the Buildings and construction ― definition of dwelling guidance note.

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