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HM Revenue and Customs Brief 13/16 - Dwelling formed


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Published 21 September 2016

Purpose of this brief

This brief explains the change in policy relating to 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. HM Revenue and Customs (HMRC) now accepts that single dwellings can be formed from more than one building.

Who needs to read this?

All parties involved in the construction and supply of buildings that are designed as dwellings or undertaking conversion services of non-residential buildings.


Previously, HMRC had considered that while a building could contain more than one dwelling, a dwelling could not be formed from more than one building. This was because the law, Group 5 of Schedule 8 of the VAT Act 1994, consistently referred to ‘a building designed as a dwelling’, which HMRC considered precluded more than one building from constituting a dwelling.

However, it was decided in the First Tier Tribunal cases of Mark Catchpole (TC01995) and Mr T Fox (TC01957) that for the purpose of Group 5, it was appropriate to interpret the law as allowing the construction of dwellings formed from more than one building, to be eligible for zero-rating. HMRC, having accepted this decision, considers that it can, in principle apply to some conversions.

The change in policy

HMRC now accepts that the law doesn’t require a dwelling to be formed from a single building.

A number of 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 all the following:

  • 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 and:

    • 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

What is a building ‘designed as a dwelling?’

In order to be eligible for zero-rating the usual conditions (please read VAT Notice 708: buildings and construction) will need to be satisfied but where more than one building is designed jointly to be a single dwelling, their construction will be eligible for zero-rated relief where the following conditions are satisfied:

  • the dwelling consists of self-contained accommodation, it will not be necessary for each of the buildings to be a dwelling in its own right, for example, the bedrooms could be in one building and daily living accommodation in another
  • there is no provision for direct internal access from the buildings forming the dwelling to any other dwelling or part of another dwelling
  • the separate use, or disposal of the dwelling (comprising more than one building), is not prohibited by the terms of any covenant, statutory planning consent or similar provision
  • statutory planning consent has been granted in respect of that dwelling and its construction or conversion, resulting in a dwelling formed by more than one building, has been carried out in accordance with that consent

Where a building, designed as a dwelling, has been constructed at the same time as another building and jointly the two are not to form a single dwelling but rather to form a dwelling and an unattached annexe (which is identified as such on the planning documents) zero-rated relief will be restricted to the building that is a dwelling.

Conversion services

Where work is undertaken to convert premises consisting of more than a single building into a dwelling (for example, where premises are being converted to a different residential use), HMRC now accepts that it would qualify for the reduced rate (5%) of VAT.

Date of effect

Those who have constructed or converted eligible buildings into new dwellings, consisting of more than one building that hasn’t previously been treated as zero-rated (for example, works of construction and eligible conversion services) may submit claims for overpaid VAT subject to the normal time limits.

The Commissioners may refuse claims where the claimant would be ‘unjustly enriched’ as a consequence.

About the Author

© Crown Copyright 2016.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.

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Article Published/Sorted/Amended on Scopulus 2016-09-22 00:00:00 in Tax Articles

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