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Property developers beware!

It’s easy to think you should get VAT relief when you take an old pub and make 4 new maisonettes.  Similarly if you take an old shop with a flat above and make a new pair of semis.  Unfortunately the Upper Tribunal decided both projects were outside the relief and VAT could not be reclaimed on conversion costs.

The appeals were made by Languard New Homes Ltd and DD & DM MacPherson (UKUT 0307 TCC) but heard together as they both centred on the same issue.  Both properties were split vertically so that some of the original residential space on the upper floors became part of the new dwellings.

The Upper Tribunal reluctantly had to agree with HMRC that any conversion containing any previously residential space cannot fall within the zero-rating relief.

It all seems terribly unfair, especially as this particular zero-rating was intended to encourage developers to work on existing building to increase housing stock.  So while we might argue that this decision runs counter to Parliament’s intention, and perhaps the law was badly drafted, but for now and until the law is changed, these are the rules.