Sarah Franklin, Senior VAT Manager

HMRC have released a new version of Notice 742 which sets out their policy in respect of land and property issues.

A full version of the updated notice  can be found here. The main principles set out within the notice have not changed. However, we have summarised the key changes/clarifications below:

Definition of “licence to occupy land” – paragraph 2.5

HMRC have made minor changes to their guidance regarding the definition of a “licence to occupy land”. This is to bring UK guidance in line with EU principles.

Civil engineering works – paragraph 3.3

HMRC now consider that the sale of land containing new civil engineering works where those works are a minor part of the supply is a supply of exempt land (subject to the option to tax). Previously they had required an apportionment to be made between the land (if exempt) and the civil engineering element (standard rated).

Guidance on parking for dwellings – paragraph 4.4

HMRC now accept that the first sale or long lease of a garage or car parking space can be zero rated even if sold after the sale of the residential unit. This change of policy should mean that housebuilders have an opportunity to seek repayment of VAT incorrectly accounted for (subject to the four year ‘capping’ provisions).  The letting of garages or parking spaces in conjunction with the letting of dwellings for permanent residential use (under shorthold tenancy agreements or similar) is exempt providing that:

- the garage or parking space is reasonably near to the dwelling, and

- the tenant takes up both the lease of the dwelling and the lease of the garage or parking space from the same landlord.

Guidance on the treatment of land and buildings on hand at deregistration  - paragraph 7.8

If you cancel your VAT registration because you are closing down your business or trading below the registration limits, some or all of the assets on hand (including land and buildings) may be treated as supplied by you when you deregister. HMRC provide further guidance on this matter at paragraph 7.8 to Notice 742.

Inducement payments – paragraph 10.1

The guidance on ‘inducement’ payments has been updated following the 2001 ECJ decision in ‘Trinity Mirror’. Where the tenant acts as an anchor tenant (in order to attract other tenants) their supply will always be a standard rated supply. In such cases, the input tax you incur on the payment to the tenant is attributable to your lettings of the building and will generally be recoverable where you have opted to tax.

If you wish to discuss any of the above further or any other VAT and property matter, please contact Sarah Franklin on 01962 735350.