R&C Brief 13 (2016): VAT treatment of dwellings

HMRC has published Revenue and Customs Brief 13 (2016): VAT, the liability treatment of a dwelling formed from more than one building

This brief explains the change in policy relating to the treatment of dwellings that have been formed from either the construction of new buildings, or from the conversion of non-residential buildings into a dwelling. HMRC now accepts that single dwellings can be formed from more than one building

In order to be eligible for the zero-rate, the buildings must meet all the following:

  • the development must meet the conditions of a ‘building designed as a dwelling’ and to this end ‘building’ can mean more than one building
  • all buildings must be constructed or converted under a single project and under a single consent, if a new dwelling that is made up of more than one building is constructed in stages, we will view subsequent stages as annexes to the original building, which will not benefit from the zero-rate unless the buildings are on the same site and:
    • the stages are completed with no unreasonable delay between them
    • none of the buildings are occupied until all the stages are complete

In order to be eligible for zero-rating the usual conditions will need to be satisfied but where more than one building is designed jointly to be a single dwelling, their construction will be eligible for zero-rated relief where the following conditions are satisfied:

  • the dwelling consists of self-contained accommodation, it will not be necessary for each of the buildings to be a dwelling in its own right, for example, the bedrooms could be in one building and daily living accommodation in another
  • there is no provision for direct internal access from the buildings forming the dwelling to any other dwelling or part of another dwelling
  • the separate use, or disposal of the dwelling (comprising more than one building), is not prohibited by the terms of any covenant, statutory planning consent or similar provision
  • statutory planning consent has been granted in respect of that dwelling and its construction or conversion, resulting in a dwelling formed by more than one building, has been carried out in accordance with that consent

Where a building, designed as a dwelling, has been constructed at the same time as another building and jointly the two are not to form a single dwelling but rather to form a dwelling and an unattached annexe (which is identified as such on the planning documents) zero-rated relief will be restricted to the building that is a dwelling.

Where work is undertaken to convert premises consisting of more than a single building into a dwelling (for example, where premises are being converted to a different residential use), HMRC now accepts that it would qualify for the reduced rate (5%) of VAT.