I need clarification of VAT exemption and property transaction
VAT and property is a complex area of legislation. The general VAT rule is that supplies of UK property are exempt; however there are numerous exceptions to this rule.
Residential Property
To qualify as a residential property or a dwelling a building must satisfy certain conditions.
Construction
During the course of construction of a dwelling certain services and goods can be zero-rated. Guidance on this can be found in Notice 708 Buildings and Construction. The services of architects, surveyors and others acting as consultants or in a supervisory capacity are excluded from zero-rating.
New
The property is deemed to be new on completion of construction and until the first supply. The first sale of a freehold or grant of a long lease by a person constructing is zero-rated.
Future Disposals
Future disposals of a property will be exempt from VAT.
Repairs/Improvements
Costs relating to subsequent works on dwelling will be charged subject to the standard rate of VAT.
Commercial Property
A building that does not fall within the definition of non-commercial is commercial.
Construction
The standard rate of VAT applies to all supplies of goods and services in the course of construction, or any building work in connection with commercial buildings.
New
Commercial buildings are classified as new until they are 3 years old. During this period the sale of the freehold is standard-rated as is the sale of an uncompleted building.
Future Disposals
Once the building is over 3 years old disposals in the future are by default exempt from VAT. Exempt supplies can be turned into standard-rated supplies by an option to tax.
Option to Tax
The option only applies to commercial properties. Once an option has been made it can only be revoked within the first 6 months or after 20 years. The option is made on property by a person.
Repairs/Improvements
The standard rate of VAT applies to all supplies of goods and services in the course or alteration or refurbishment.
Michelle Allen can use her experience to identify the appropriate VAT legislation and interpret it and determine the correct VAT treatment.
If on review it is still unclear which rate to apply we can write to HM Revenue & Customs for a ruling. A ruling can be requested for a particular transaction that has occurred or will occur in the near future, in order to rely on the ruling you must present all the facts.
