Tribunal decision could change VAT rules for rural residential refurbishments and rebuilds

Building new residential from scratch is zero-rated for VAT, whereas refurbishment of an existing residential structure is fully VATable at 20 per cent.

Even residential properties empty for two years and then refurbished, or non-residential properties that are converted into residential, are only eligible for the reduced five per cent rate.

The Tribunal found however that if in appearance a new building was constructed it should not matter whether a retained wall from an old structure was incorporated into it, and zero rating should therefore apply.

Jamie Younger, Partner with Saffery Champness, and a member of the firm’s Landed Estates and Rural Business Group based in Edinburgh, said the decision is of particular relevance in the rural residential sector.

He said: “Here, often tradition, retention of regional vernacular style and the conversion or extensive refurbishment of old farm buildings and steadings with certain aspects and features retained are important factors.

“This latest ruling does inject some common sense and provide some clarity as to what should qualify as new build residential so that construction costs are zero-rated for these types of projects. We will have to wait and see whether HMRC will revise their policy and practice, but our view is that despite this ruling there is unlikely to be a change to the VAT law on zero-rating relief until Brexit is completed.”