Subject to a number of preconditions being satisfied, VAT incurred in connection with turning a property into a residential dwelling are refundable by HMRC.

One of the key preconditions to availability of a refund is that the building must be meant for separate use or disposal as a dwelling.

In the recent case of Gerard Silver -v- HMRC the First Tier VAT Tribunal ruled that a planning condition which restricted the use of the barn (which was being converted) to ‘ancillary residential accommodation to the adjacent farm’ meant that the necessary precondition as to separate use was incapable of being satisfied and a refund of VAT wasn’t therefore available.

This decision is consistent with that of the Upper Tribunal handed down in HMRC -v- Lunn.  In Lunn, the construction of a dwelling within the curtilage of a building pursuant to a consent which allowed the property to be used only for ‘incidental or ancillary residential uses’ meant that the condition that the property must be intended to be used as a ‘separate house’ couldn’t be satisfied (and the zero rating which would ordinarily be available in connection with the construction of a new build or residential dwelling wasn’t available).

These cases illustrate the importance of considering the VAT implications of any development at an early stage to avoid a nasty surprise when efforts are made to reclaim or obtain a refund of any VAT.

If you wish to discuss any issues raised in this blog please contact Mark Withers at mark.withers@parissmith.co.uk