Vat on renovated property

No
A property development company can not reclaim the vat it suffers on development costs as the sale of the renovated property is an exempt supply?
That's correct. Conversion of a property from commercial to domestic, may, depending on the circumstances, result in a zero rated supply.
Secondly if the property was renovated to rent out would the vat element of the costs be reclaimable?
Rental of residential accomodation is an exempt supply, too, so no reclaim

Mmm...
As Neil says the devleoper could elect to waive the exemption.
Well, no I didn't say that. The first time supply of domestic property is zero rated, end of story. There's no exemption to waive.

Mmm again
Can I also assume then that by the very nature of the business the developing company will need to be vat registered due to its turnover so the builder will have to charge the developing company at the SR and not the reduced 5% rate?
The application of the 0%, 5% or standard rate depends on the nature of the work and the nature of the building, not the VAT status of the owner. Am I misunderstanding the question?

Option to waive the exemption
As Neil says the devleoper could elect to waive the exemption.

This could apply where the building is for commercial use or the conversion of a non-residential building, or part of one, to make a dwelling for residential purposes.

Most future supplies in connection with that property would then be standard rated. C&E notice 742a covers the topic

Neil
Oooh...!!! picky....

The general rule is the first time supply of a new dwelling is a zero-rated supply.

Neil quite rightly highlighted the position regarding input tax.

A supply in respect of renovations or conversions of residential properties will be charged at the reduced rate of 5% if it falls into one of a number of categories, including:

conversion of a residential building into a number of dwellings,
renovation of dwellings which have been empty for 3 years or more
renovation or alteration of a multiple occupancy dwelling, on or after 1st June 2002.

Not forgetting that input tax can be reclaimed on goods which are not incorporated into the building, this would cover freestanding kitchen appliances, freestanding wardrobes and so on.

Two answers
Sorry Raymond, I was' t having a go, but in some circumstances the waving or not of the option can be vitally important. Toni needs some guidance and I just wanted it to be clear.

Toni, it sounds like the development company doesn't have any VATable supplies. It will be important that the correct rate of vat is charged. Some developers employ their own employees to do work as it avoids unrecoverable VAT on the labour element. (Brings other issues, though!)

Two answers
Sorry Raymond, I was' t having a go, but in some circumstances the waving or not of the option can be vitally important. Toni needs some guidance and I just wanted it to be clear.

Toni, it sounds like the development company doesn't have any VATable outputs. It will be important that the correct rate of vat is charged. Some developers employ their own employees to do work as it avoids unrecoverable VAT on the labour element. (Brings other issues, though!)

Don't bother ringing Vat enquiry line
We had a similar case and requested some clarification from Vat enquiry line. They very helpfully referred us back to the Vat notice which was exactly what we were seeking to clarify - no help there then

VAT is not recoverable
Input tax can only be reclaimed against a taxable supply. The first major grant for domestic accomodation is zero rated all future supplies are exempt.As the sale of the property will not be the first grant the supply will be be exempt thus no input tax can be reclaimed, you cannot elect to waive exemption i.e. Opt to Tax on Domestic Property. Schedule 7A allows renovation of homes not lived in for 3 years to be billed by the builder at 5%.