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bigduckontax, Accountant
Category: Tax
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If I buy a lease to the roof and airspace above a block of

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If I buy a lease to the roof and airspace above a block of existing flats and get a Planning Consent to build a number of new apartments, which would be accessed via the front doors and staircases to the existing flats.......all this being agreed with the freeholder and covered by the terms of the lease.........what would be my VAT liability on the construction cost of the development be?
Hello, I'm Keith and happy to help you with your question.
VAT Notice 708 gives the following guidance:
'Renovation or alteration of empty residential premises. 5% Section 8'
The builders etc, if registered for VAT, should be charging VAT at 5% on their invoices. It doesn't really matter if they charge the standard rate, it is all input tax and can be reclaimed quarterly. I do see your problem though. You will have a large chunk of exempt outputs in your business and exempt supplies by you can severely reduce the proportion of input tax which can be reclaimed. Thus you must ensure that your VAT inputs are as low as possible.
I do hope I have pointed you in the right direction.
Customer: replied 3 years ago.

The building project would not be 'renovation' and the existing flats would not be 'empty' maybe your starting premise is incorrect?

The existing flats would all be occupied while the new apartments are built on the flat roof above. So we are talking about new build which is normally VAT exempt.......I am just concerned about whether HMRC would view this project as new build there any possibility that they would say it is an 'extension' as the new properties are to be accessed via the existing front doors and stairs within the building (albeit the stairs will need to be extended up to the newly created flats)

VAT 708 says 'renovation or alteration.' The part of the building upon which work is being undertaken is indeed empty. As far as I am aware no building or conversion work is ever exempt from VAT. VAT is chargeable at standard rate [20%], reduced rate [5%] or zero rated, but never exempt. These are the only openings available under VAT 708.
You need to go carefully down this road in the light of VAT 708 because gthw application 'Approved alterations to listed dwellings and communal residential buildings, and certain listed buildings used by charities.' would land you with standard rated supplies.
Customer: replied 3 years ago.

I meant zero rated rather than exempt!

3.1.1 Introduction

If you construct a new building you will normally have to charge VAT at the standard rate. You may, however, be able to zero-rate your supply if you are involved in constructing a qualifying building. A qualifying building can be:

  • a building ‘designed as a dwelling’ - see paragraph 14.2

If you look at 14.2 does it not cater for the circumstances that I have described self contained dwellings?

I have answered this question and explained that the relevant VAT Notice 708 does not actually cover the conversion which intends to undertake. Other than advising him to check with his local VAT office for advice there is little more I can advise. I suggest that the current rating should be upgraded.
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Thank you for your support.