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Land and Property

Land and Property VAT issues are extremely complicated and it is recommended that the Tax Department are always contacted in advance of any work being started.

Key facts

The construction of, or grant of a major interest (freehold sale or grant of a lease over 21 years) in, a building intended for use solely for a relevant charitable purpose or a relevant residential purpose is zero rated.

HMRC interprets "solely" as at least 95 per cent use for relevant charitable or residential purposes.

Where a change of use relating to relevant charitable purpose or relevant residential purpose occurs within ten years from completion of a zero rated building a change of use charge will apply.

UCL may, however, be able to deduct some or all of the charge as input VAT if the non-relevant use of the building is taxable. Once a building has qualified for zero rating, UCL must be careful when making even small changes to their use of the building that they do not trigger a change of use charge which could result in a VAT bill.

Works to an existing building are normally standard rated. However, where those works result in the creation of an annexe to the existing building and that annexe is to be used solely for a relevant charitable purpose zero rating is possible.