Grade II Listed Building part residential etc

by **towat** on Thu Sep 15, 2011 4:13 pm

A group of 4 individuals (non VAT registered) have purchased a derelict public house which is:

1. Grade II listed
2. The first floor is, and always has been, a residential flat.
3. They were charged VAT on most of the purchase price (I haven't ascertained exact proportion yet)

They intend to:-

1. Spend £300k on renovations.
2. Apply for Heritage funding.
3. Let the first floor as residential.
4. Use two ground floor rooms for "community purposes"
5. Let the remainder as commercial i.e. Cafe restaurant etc.

They want to reclaim the VAT on the purchase price and minimise their renovation costs by reclaiming as much Input VAT as possible.

Their main motivation is altruistic as it is a landmark building in danger of collapse, so they need to minimise costs.

All suggestions gratefully received.

by **les35** on Fri Sep 16, 2011 4:43 pm

Lots of interesting issues!
1. work that qualifies as an Approved Alteration to a Listed Building can be zero rated. This assumes, however, that the 'community' use is actually charitable. Do consider this option. It can apply to part of the building.
2. I am interested why VAT was charged on the building. That needs looking at and, if necessary, challenging.
3. If they want to reclaim VAT on refurb costs, then they must register for VAT, as soon as possible. This will need some sort of business plan, to demonstrate that they intend to make business supplies.

I am interested in reading your replies!

by **section 44** on Fri Sep 16, 2011 4:47 pm

les35 wrote:2. I am interested why VAT was charged on the building. That needs looking at and, if necessary, challenging.

Why? If anything, unless the sale was a TOGC, I would be more surprised if VAT hadn't been charged on the sale of a pub.

by **les35** on Fri Sep 16, 2011 5:04 pm

where a building is sold, and the purchaser intends to use it for domestic, residential, or charitable purpose, a disapplication certificate can be provided. This would mean that, at least in part, the option would not apply. This would create a cost-saving for the purchaser.

by **section 44** on Fri Sep 16, 2011 5:25 pm

But:

towat wrote:4. Use two ground floor rooms for "community purposes"
5. Let the remainder as commercial i.e. Cafe restaurant etc.

?

by **towat** on Mon Sep 19, 2011 9:24 am

Thanks for that so far, you have confirmed some of my thoughts however as always in these cases the bloke down the pub keeps putting his oar in and there has been mention of a 5% rate for listed buildings, is this just for conversion from commercial to residential?

Also assuming they register as a partnership then later convert to a Ltd Co presumably this can be done as a TOGC, and could they recover all of the Input VAT on the refurb or would there be a partial exemption for the residential portion?

Thamks again.

by **les35** on Mon Sep 19, 2011 9:39 am

Correct, the 5% rate applies to the services of conversion from commercial to residential. Do check the rules, though, to make sure all the work is included. Purchase of builders' materials directly will always be standard rated. I would not expect the Client to be able to recover the VAT at 5%, since the on-going supply of residential accommodation is exempt. But this does, of course, reduce the overall cost burden.
Back to the TOGC issue. If the building was a derelict pub, and is being purchased for a different purpose, arguably the TOGC provisions cannot apply in any case. This is because there is no continuing business. (If the residential flat came with a sitting tenant, then there may be a TOGC.)
In principle, the later sale from the partnership to a limited company may be a TOGC, but I think there are other questions that need dealing with before you get to that stage, as previously posted. (It may be that the Client needs to obtain fuller professional advice.)

by **towat** on Mon Sep 19, 2011 10:16 am

Well I assumed that in order to register in the first place they would have to prove that a business existed, so a later TOGC shouldn't be a problem?

by **towat** on Mon Sep 19, 2011 10:31 am

Also I understand that as the property has been vacant for more than 2 years the work on the flat could be charged at 5% or even 0% if the renovations are "approved".

by **les35** on Mon Sep 19, 2011 12:06 pm

towat wrote:Well I assumed that in order to register in the first place they would have to prove that a business existed, so a later TOGC shouldn't be a problem?

Each TOGC is treated on its merits.
Worse, if HMRC think that there is a series of TOGCs, then the TOGC rules disapply, and VAT may become chargeable; or the supply becomes exempt, with a loss of input tax.