Trading or capital gain, VAT on unusual homes, ER on sale of business premises

Last week was property week! You need to be aware of new rules that may treat gains made from UK property as trading income, subject to income tax or corporation tax. HMRC has changed its view of the VAT treatment applicable when two or more buildings are constructed or converted into a single dwelling. Finally, we examine when entrepreneurs' relief can be claimed on the disposal of a business premises.

This is an extract from our topical tax tips newsletter dated 1 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

VAT on unusual homes 
The first sale of newly constructed home (or conversion from a commercial building) is zero rated, subsequent sales are exempt for VAT. The zero rating allows the builder to reclaim VAT incurred on building costs. Until now HMRC has insisted that a single dwelling must consist of a single building. 

This view was challenged by Mr Fox and Mr Catchpole in two cases in 2012. The taxpayers won, but it has taken four years for HMRC to change their official view. They have now released Revenue & Customs Brief 13/2016 which sets out their revised policy. 

HMRC now accept that if a dwelling is designed to incorporate more than one building, say a guest house across a courtyard from the main building, the result can be zero rated. However, all the construction or conversion work must be undertaken as one project with no unreasonable delays between the project stages. 

If your client incurred costs on converting two or more non-residential buildings into a single home, and either had their VAT claim blocked, or did not attempt to reclaim the VAT, they can now submit a claim. However, HMRC will only consider claims relating to the last four years. Our VAT experts can advise you on the format of claims which will be acceptable to HMRC.

This is an extract from our topical tax tips newsletter dated 1 September 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>> 
 
The full newsletter contained the remainder of this item plus links to related source material and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>