It is common ground that a new self-contained residential dwelling is not treated as such for VAT purposes if it is incapable of being either used or disposed of independently. This generally prevents ‘granny annexes’ from benefitting from either the zero-rate on construction or claims under the DIY housebuilders scheme.
Restrictions on separate disposal which are included within planning consent granted have often prevented the application of the zero-rate for construction costs and / or claims under the DIY scheme. Therefore, it is important to know whether such restrictions maybe applicable to prevent unexpected VAT costs. However, some restrictions do not necessarily prevent zero-rating e.g. a restriction on the sale of a dwelling without adjoining farm land does not necessarily prevent either the zero-rate from applying on construction costs, or a DIY housebuilders claim.
This was the issue in a recent Tribunal decision. A restriction on disposal was contained within the planning permission issued by a local authority; however, whilst the property sat within the geographical perimeter of the local authority, it also sat on land owned by a national park. As such it came within the authority of the national park and not the local authority for planning purposes. Whilst planning permission may have been required for other purposes, the local authority was not the relevant planning authority and therefore the permission granted had no effect. This meant that the restriction was not effective, and the property was eligible for a claim under the DIY housebuilders scheme.
This reflects the complexity of VAT, and the importance of understanding the core rules and applicable definitions. There are several reliefs available from VAT at both the zero and reduced rate, but only where the relevant circumstances and / or facts exist. In the same way, an Option to Tax on an otherwise exempt property transaction can produce significant cash-flow savings, but should not be entered into lightly, unless the full facts are considered. Businesses can soon find themselves out-of-pocket and/or falling foul of anti-avoidance provisions.
The VAT law concerning land and property transactions and developments continues to create issues, which tend to be costly and are often avoidable. Anyone considering a transaction or development relating to property should seek advice on the VAT position and / or consequences as small oversights or misunderstandings can be costly.