FHL - Changing use of one property

From commercial to Residential

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Scenario is as follows: Husband and Wife run a FHL business which is VAT registered. The business consists of 6 suites which are all on the same Land Registry Title. They would like to transfer one of the properties onto a seperate title and change its use from a commercial to a residential property, they will then either refurbish the property or demolish it and rebuild. In terms of the implications of this, the key points I believe are as follows (but would appreciate any more comments)

1) Changing its use will mean the property will no longer be subject to business rates, but council tax instead

2) The intention with the new/refurbished property is that it will be let on a longer term basis (which of course isnt allowed for a FHL) and therefore they will be unable to recover any VAT on the refurb or any relevant costs that are subject to VAT if it were a new build becuase the end supply is an exempt supply

3) Assuming the other properties continue to meet the normal FHL conditions, this property will not affect the partnership in terms of tax or anything else. The new property will no longer be within the Pship and the profits derived from it will be treated as rental income for the H & W as owners, with no VAT charged on the rent

4) Am I missing anything else here? Reviewing this matter did make me consider the impact of a FHL business selling the properties and whether such a sale as an exempt supply would create any clawback of VAT input. This is assuming the property is > 3 years old and no OTT has been applied. I assume CGS rules would also be relevant here.

Thanks in advance. 


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