HMRC reform treatment of dwellings

HM Revenue and Customs (HMRC) has proposed a change in policy regarding 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.

The tax authority said it will now accept that single dwellings can be formed from more than one building, and several buildings may be combined to form a single dwelling as long as they are designed to function together for that purpose.

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

  • 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
  • the stages are completed with no unreasonable delay between them
  • none of the buildings are occupied until all the stages are complete (to understand what is meant by ‘complete’ please read Section 3.3.2 of VAT Notice 708: buildings and construction

The current law considers that a building can contain more than one dwelling, but a dwelling could not be formed from more than one building.

This is because the law, Group 5 of Schedule 8 of the VAT ACT 1994, only refers to “a building designed as a dwelling” rather than buildings.

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