Q:
Hello
I know the first sale of a shared ownership property is treated as zero rated income and any sale after that is exempt – if you have ‘person constructing’ or ‘person converting’ status.
We are purchasing properties (previously occupied as a single occupancy dwelling) and converting them so the are then dwelling where several learning difficulty people live with their career. After the conversion they are sold as shared ownership.
I would just like confirmation that the shared ownership sale in this instance is treated as zero rated income.
Thanks for your help
A:
Hi
My apologies for the delay in replying to your query – we’ve had a couple of family bereavements in the past couple of months and I’m a bit behind with lots of things.
As you know, I don’t give advice about any specific transaction here on the forum, but I’ll tell you what I believe to be the normal rule for such transactions. In your case, I would strongly recommend that you take formal VAT advice about your plans or at the very least speak to your accountant as its a complicated, costly subject and you don’t seem to understand how complicated the rules about VAT and property work in detail.
Unfortunately I think that you’re wrong in thinking that the supplies of converted property in the circumstances you describe will be zero-rated. The rules on construction and development of property are very complicated and the zero rated status applies only in very limited sitations, especially in the case of converted property. See VAT Notice 708: Buildings and Construction section 5 here http://tinyurl.com/27ypsdh which explains when zero rating is available.
Zero-rating is only available in certain limited situations for the supply of non-residential buildings which have been converted to residential use, under the “non-residential conversion” rule. The defination of what is non-residential is that either the buildings have never been used as dwellings or for residential purposes or have not been so used in the previous 10 years. So if the buildings have recently been used as dwellings as you describe, then the sale of the converted properties wouldn’t qualify for the zero-rating relief under the non-residential conversion rule.
This obviously will be important as if the sale of the properties will be exempt rather than zero-rated, you won’t be able to recover the VAT on the costs incurred in the conversion work. In that case, you need to consider whether the conversion work is eligible for the reduced rate of VAT, which is explained at section 7 of the notice. The reduced rate normally applies to conversion work when the work creates a different number of dwellings/relevant residential properties – see section 7.2 for details. But either way, you have to be working on the presumption that the conversion will be liable to VAT at either 5% or 17.5% (or even 20% depending on when the work is done).
I know that this isn’t the answer you expected or wanted. However I should emphasise that the information that I give here is only for general guidance and should not be regarded as definitive guidance on any VAT issue. In order to give definitive advice, I would need to see contracts, plans etc about the proposed transactions and I can only give that sort of advice via my formal consultancy service.
This is particularly important in the case of property transactions as the rules are complicated and the costs involved are high and the addition of VAT can make the difference between making a profit or loss on any deal.
In the circumstances I’d strongly recommend that you take some specialist VAT advice or at least speak to your accountant about the subject as it may well be the case that your proposed venture has become significantly more expensive than you’d anticipated as you may not be able to recover the VAT on the conversion work. I would be pleased to help through my formal consulting services – please contact me via the “Contact Us” link.
Marie