HMRC revise VAT policy on dwellings – important for those considering multiple property developments/ conversions

HMRC has recently altered the policy in relation to the VAT treatment of dwellings formed from more than one building.

Previously the rule was that a single building could contain more than one dwelling, but a single dwelling could not be formed from more than one building. However, HMRC now accepts that a number of buildings may be combined to form a single dwelling provided they are designed to function together for that purpose.

In practice this means that:

1. Contractors and developers building new dwellings formed from more than one building can zero-rate their services; and
2. Contractors and developers creating new dwellings formed from more than one building by converting certain non-residential properties can charge the reduced rate.

Whilst the decision has been made following recent tribunal cases, certain criteria still remains which must be met – such as meeting usual conditions to be a ‘building designed as a dwelling’ and must be constructed or converted under a single project and single consent.

Certain projects that have previously been constructed or converted – which previously claimed under the “old” policy may be eligible to reclaim overpaid VAT – subject to meeting the criteria and certain HMRC rules.

Speaking about the change in rules, our VAT team said: “There will certainly be situations where ongoing and future development projects will benefit from the change in policy and where completed qualifying projects will see an increase to the bottom line by retrospective VAT adjustments.”

For advice on this or any other property-related VAT matters please contact us.

This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.