VAT property
acquisition & development
One of the most costly items for any organisation is property. Not getting the VAT position right from the outset can cause real issues that are very difficult to untangle once they have happened. Our mantra is ‘the sooner the better’ getting advice – because even if you still run into issues and HMRC investigate you can prove you sought early necessary precautions.
The rules concerning the purchase, construction or development of land and property are complex. We always recommend that you seek professional advice, and as early as possible. It may be that the VAT consequences of the proposed project will have a significant effect on its viability.
VAT Law provides that the freehold sale of a new building for ‘relevant charitable purpose’ is zero rated reliving the vendor, and therefore the charity, of the VAT cost of its construction. Whilst this is good news, conditions do apply, and must be fulfilled and more importantly they cannot usually be corrected afterwards.
Where a business or charity seeks to develop an existing building, then that work will be standard rated. Works to enable accessibility can be zero-rated, including installation of a wheelchair ramp, widening corridors and doorways and works to a disabled toilet, providing a certificate from the building contractor(s) is issued.
Where the charity engages in business activity, then that has certain implications for property development. Business activity can jeopardise the zero rating and this is where it should consider being VAT registered to recover further VAT charged on the development.
If the activities of the business or charity change, the original VAT liability may need to be re-visited.
For example, where a charity has benefited from the zero rating to a new building, as described above; and, within ten years of Completion, it commences business activities, a VAT charge will apply. (This can, and should, be planned for, to mitigate its impact). View our latest VAT property case studies to understand the complex cases we can help you work through.
If your business or charity has an ongoing development or want to embark on a purchase or new development then get in touch to see how we can help you further.