A construction client is completing 7 New build Live/work houses with a sale price of £500,000 each. A recent VAT visit has resulted in an assessment for VAT on the 2 units already sold, with a direction that the remaining 5 houses be wholly standard rated. Not even any apportionment.
The reason given is that by merit of the planning covenant relating to the live/work unit i.e. that the commercial element cannot be sublet or sold separately, the remainder of the property fails to qualify as a "dwelling" and as such zero rating of this new build house is not possible. It all becomes standard rated.
This is a disaster for the builder concerned as the houses now become overpriced to the buyer, with £87,500 to be added to each, and with little or no scope of the buyer being able to recover VAT even if they were VAT registered. The alternative is to account for VAT from gross proceeds which is equally unsatisfactory.
Be clear, these are new build houses, with provision that a room reprsenting 20% of the area is used as an office/studio/workshop. The workspace is a large room within the fabric of the home.
Has anyone any experience in VAT and Live/work units?
Thank you
Marc
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