Zero rated VAT on new build holiday let

mff369

Hi,
Could anyone tell me if a new build holiday let would be classed as zero rated regarding vat. I have looked on hmrc.gov.uk and i am still uncertain. I looked at section 708 (building & construction). In this section i looked at 4.4.2 & 3.1.2.

mff369

JasonLVC

4.4.2 refers to when you already have a holiday let and are now selling it to someone else - it would be standard rated as it would be an asset used in a standard rated business (letting holiday homes is taxable).

Your question is about building a new holiday let. That is a different question altogether. The rules are the same for normal, residential dwellings, that is, the construction of a new dwelling is zero rated.

BUT

The key to your question is whether or not the property you intend to build can be classified as a dwelling. HMRC define a dwelling as a property that is self-contained (ie, bathroom, kitchen, bedrooms, living area) and crucially, it must have disposal rights within the planning permission.

Disposal rights means that the property can be sold on its own without restriction. Often, when obtaining planning permission for a holiday let, there are restrictions imposed by the Council which usually means the holiday let building cannot be sold on its own, it must be sold with accompanying land and other properties.

For example, you own a farm, farm house and convert a barn on your land into a holiday let. The planning consent will usually stipulate you cannot sell the holiday let building on its own, you have to sell the holiday let, farm house and farm land too. its to stop backdoor developments. If you have such a planning restriction then the holiday let is NOT a dwelling and so cannot be zero rated.

Another example is someone who builds a granny flat in their garden and start renting it out on short term lets, again, the planning permission will certainly restrict the sale of the granny flat (ie, you can't sell it on its own) and so it will not qualify as a new dwelling and not be zero rated.


In reality, the builder will likely be happy they are building a new dwelling and not be aware of the subtle restriction rules hidden within the planning consent - builder will just think "I'm building a new house" and so you'll probably get it zero rated by chance, any problems is on the shoulders of the builder and if builder gets inspected and HMRC discover the property should not have been zero rated the builder may come back to you in the future although you'd just tell them to go away, so maybe make sure the contract with them stipulates full and final settlement in terms of the fee agreed.