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A ‘new build’ property is z

ero-rated for VAT such that all VAT incurred on any related expenditure can be recovered. If the new property is not a new building, then the sale is likely to be VAT exempt which does not give the right to VAT recovery.
 
Generally, any pre-existing building needs to cease to exist in order for a claim to be made. However, HMRC’s VAT Notice 708 states that if ‘the new building makes use of no more than a single facade (or a double facade on a corner site) of a pre-existing building, the pre-existing building is demolished completely (other than the retained facade) before work on the new building is started and the facade is retained as a condition or requirement of statutory planning consent or similar permission’ then they will agree to the supply being zero-rated.

The Notice states that another external wall can be treated as a ‘facade’ if it is to be retained under the same rules and there is only one facade.

Example:
Two recent tax cases show the court’s view as to what qualifies as a ‘facade’.

In A D Reeves v HMRC (2016) the issue was whether the retention of a gable wall to the side of the property qualified. The tribunal decided that it did not by accepting the dictionary definition which defined a ‘facade’ as being ‘the face of front of a building towards the street or other open place’. The gable of Mr Reeves’ property did not ‘face the front’ and as such the claim was disallowed.

In M Lennon and Co Ltd v HMRC (2015) Mr Lennon intended to demolish the existing building and construct a new house. However, because of how the original building was constructed, there was a risk that the party wall would fall down. Therefore, one half of the front facade was retained to provide support. When the property was sold HMRC asserted that zero-rating did not apply because the original building had not been completely demolished.

The court held that no VAT could be reclaimed as no planning permission had been required and therefore the retained facade could not be said to be ‘retained as a condition or requirement of planning consent’.

This is a sample tip taken from our 112 page guide:

101 Tax Tips For Landlords 2016/17