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bigduckontax
bigduckontax, Accountant
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I have received planning permission to restore and convert

Customer Question

I have received planning permission to restore and convert two old buildings in a conservation area into four residential units. The buildings were formerly used as industrial units. What rate of VAT (if any) is payable on the project please?
Many thanks,
Peter Downing
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Peter, I'm Keith and happy to help you with your question.
VAT an buildings can be a problem. If you are registered for VAT and you trade through your normal business account charging the refurbishment VAT and reclaiming same as input tax you will have to add VAT to the sale price. Thus may inflate the price to 20% above market value and many buyers, particularly those not registered for VAT, may jib at the excess cost. Only the very biggest companies go down that road.
The only VAT you would normally incur would be added to the refurbishment bills by what ever contractor you use and paid by you on settlement. However, the recalculated acquisition for Capital Gains Tax (CGT) is the original price plus costs plus refurbishment costs. Your sale price less costs gives the sale for CGT purposes and the difference is the gain taxable at 18% or 28% or a combination of the two rates depending on your income in the year of sale. You have an Annual Exempt Allowance of 11K to offset this gain.
You see, your question rather unexpectedly spills over into that rather nasty tax, CGT.
I do hope that I have helped open your eyes to your taxation position.
Customer: replied 2 years ago.

Hello Keith,

Thank you for the advice. Perhaps I should explain a little more: the reason I asked the question is that someone told me that he thought the rules governing VAT charged on building works had changed recently and that VAT was no longer payable if old buildings were being converted to residential use.

Some of the work will be carried out by a VAT register company and the rest by individual tradesmen who are unlikely to be VAT registered.

We don't intend to sell when complete - they are for rent, so C.G.T. isn't an issue now.

Many thanks,

Peter

Expert:  bigduckontax replied 2 years ago.
Right Peter, here is the latest from HMRC to which I draw your attention:
'Schedule 8, Group 5 (as amended by SI 1995/280, SI 1997/50, SI 2001/2305, SI 2002/1101 and SI 2010/486) specifies when the construction (and the supply of building materials with those services), conversion of a non-residential building (and the supply of building materials with those services), sale, or long lease of a building is zero-rated.'
This now puts the ball firmly in you and mainly your contractor's court. The supply he makes by refurbishment is zero rated for VAT so should he try to charge you the tax on his invoices reject them and draw his attention to the new rules of which, of course, he may well be aware. The zero rating also means that all supplies purchased for the job have the VAT on them passed through his VAT accounts as input tax and thus reclaimed by him in the normal course of his business.
Deep apologies for misunderstanding your original question; all sorted out now, I hope.
Customer: replied 2 years ago.

Wonderful! Thank you Keith

Expert:  bigduckontax replied 2 years ago.
Delighted to have been of assistance.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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