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vat reclaimed on Self Build House now to be Holiday Lets

A client has built a new house, as they live in a tied cottage, and have reclaimed the vat as a self build earlier this year, but they now plan on using it for furnished Holiday Lets until they need it if and when the job finishes.  Is this a problem as it will be a business and therefore the vat should not have been zero rated by the builder or reclaimed.  Could the vat then have to be paid or are they ok.  Thanks

Jean 

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They should be OK.

1) The reclaim - You're allowed to reclaim VAT on a new build if it's construction is not in the course of business, what happens once it's completed  is largely immaterial unless you've lied about your intention, so as long as the intention was to build his/her house then the client's fine. Many DIY claims are for houses sold as soon as they're finished thanks to economic circumstances, as long as there was no business intention at the outset then the client should be fine.

2) As to zero rating by builders then this is definitely fine, presumably the planning permission is for domestic property, and there's no occupation restriction that bars use as a private residence. If that's the case then the construction can be zero rated, even if the client had a business intention for holiday lets at the outset. It would only be a commercial build, and non-zero rate, if there was a planning restriction that stopped it being used as a domestic dwelling. Indeed even with some levels of restriction tribunals have still seen holiday accomodation as essentially domestic dwellings and allowed zero rating anyway.

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Intent

is important with VAT and as the reassessment was post the claim the claim as a self build is quite proper.

Had they intended it initially as a holiday let then they would have had to register to get the VAT back they'd incurred themselves or route everything through the builder as zero rating still applies irrespective. Either way the rules as to what they can and cannot claim are the same.

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VAT reclaim

Thanks to you both for your responses.  I will advise my client that they are ok to start up the holiday lets and confirm with them that the change of use was decided after the reclaim.

Thanks again

Jean

 

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