There are valuable VAT zero-ratings for the construction of a ‘dwelling’ for VAT purposes, and another for the sale of a freehold, or long lease (over 21 years) in a newly constructed or converted dwelling.
Zero-rating means that no VAT is due on the supply (i.e. the purchase of the house by the customer) but unlike other transactions in the land and property sector, VAT on costs can be recovered in full, which is beneficial to the supplier, both in terms of cash flow, and in absolute terms.
For the relief to apply, certain criteria must be met, and a number of the criteria focus on planning permission.
If the build doesn’t go to plan (pardon the pun) or isn’t exactly in line with the planning permission granted by the planning authorities, then often the work will fail the ‘dwellings’ test and the work won’t qualify for relief.
Source cowgills.co.uk
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