VAT: Land and Property Changes

There is a proposal to remove the exemption and zero rating from certain transactions relating to land and building from the 1^st October 2012.

The changes affect:

1.        The exemption currently applying to self storage

2.        The exemption applying to the rental of chairs by hairdressing salons.

3.        The zero rate applying to the sales of caravans for holiday use

4.        Approved alterations to residential or charitable buildings

All of the above supplies will become standard rated. In addition, the first grant of a major interest in the substantial reconstruction of buildings at item 4 above will be exempt where the building is not reduced to a shell.

Footnote: The imposition of the standard rate to self storage is confusing to say the least especially since the definition is not clear and the exemption will still apply to such transactions between connected businesses. Hopefully the government will clarify these issues before the 1^st October 2012 deadline.

Exemptions for chair rental within hairdressing salons have been the subject of litigation for many years and this proposed measure will certainly put the issue to rest.

The change being proposed to caravans seeks to restrict the application of the zero rate to residential caravans as originally intended.

Currently, approved alterations to qualifying listed buildings are zero rated whilst repairs and maintenance are standard rated. Further, zero rating currently applies to the first grant of a major interest in a listed building where at least 60% of the works qualify as approved alterations. Such a grant will now become exempt so that input tax incurred in construction can not be recovered. There is however a transitional period for contracts that were signed prior to budget day 21^st March 2012, (or the case of substantial reconstructions where 10% of the works have been completed by 21^st March 2012), where the zero rate will still apply and VAT incurred therefore recoverable. This period expires 20^th March 2013.

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