Recoverable Input VAT on Building Conversions

When it comes to land and property, VAT is a complex issue which gives rise to many interesting cases. One such case arose when DM & DD MacPherson appealed to the First-Tier Tribunal with regards to input VAT recovery on a building conversion.

The building in question consisted of shop premises, office space and living accommodation across both floors - there was no external access to the living accommodation. Planning permission was obtained to turn this property into two semi-detached dwellings, each one made use of part of the original living accommodation and part of the original commercial property. The Appellant had recovered input VAT relating to the conversion of the property under the supposition that the onward sale of the property would be zero-rated for VAT purposes as the first grant or major interest in a building designed as a dwelling or number of dwellings.

However, as the proposed dwellings were partly created from what was  previously living accommodation, the Tribunal ruled that the onward supply would be exempt from VAT and therefore input VAT recovery would not be possible.  As a result, the appeal was dismissed.  This is an interesting decision as there are very similar cases that have been decided in favour of the taxpayer.  This demonstrates that the VAT treatment of projects such as this one is by no means clear.

Considering the VAT consequences of any proposed property transaction prior to completion to ensure that you do not suffer any unnecessary VAT loss is important given that the value of such deals is usually a significant amount for any business. To safeguard your business against any unanticipated VAT loss when it comes to a property transaction, take advantage of our helpline today for free advice.

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