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Golden Brick on Non-Residential Conversion

Can a mixed scheme of New Build and Non-Residential Conversion all qualify as Golden Brick?

Can a mixed scheme of New Build and Non-Residential Conversion all qualify as Golden Brick?

Scheme is approx 69% new build, 31% Commercial to PRS, Non-Residential Conversion (on a unit basis - calculations for other 'reasonable' basis of apportionment not carried out yet).

A couple of thoughts -

- Is there an amount of works required on NRC to enable golden brick (or is it on ratings list, i.e. when the property changes from NNDR to Council tax)

- Is there a deminimis amount of NRC allowed in the overall scheme

Any other thoughts?

 

Thanks

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By DJKL
14th Nov 2018 10:59

These guys seem to think yes, see 7.

http://terrydockley.co.uk/faqs-about-the-golden-brick/

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14th Nov 2018 11:18

What is the actual question? I'm not convinced you're asking the right one.

What is actually happening? What is/are the actual transaction(s) where you have a VAT concern?

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By DJKL
to Portia Nina Levin
14th Nov 2018 11:34

I read it as:

Can new dwellings created from the conversion of non residential property be sold before completion and enjoy zero rating?

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14th Nov 2018 12:12

Thanks so far

The link only mentions zero rated conversions (Presumably listed or non occupied for over 10 years?) -

This example is more likely to be reduced rated is it is a commercial to residential.

The actual question is -

Company A purchasing land and existing commercial buildings with VAT.

Company A OTT in place and reclaims VAT on purchase of said land.

Company A enters into a forward purchase of completed PRS scheme with Purchaser.

Company A engages Contractor A to build the site.

Either Purchaser of completed scheme cannot reclaim VAT if charged (or is unwilling to).

Purchaser therefore wants to purchase under Golden Brick scheme so is charged zero rated taxable supply.

Calculations indicate a ratio of 69% New Build, 31% non-residential conversion.

Company A is concerned that NRC element may become standard rated supply, therefore their sales price will effectively become 'gross of VAT' and reduce profit margin.

So can the non-residential conversion element become taxable at either 5% or zero rated on the basis of minimal works (i.e. Golden Brick) or will it be statdard rated.

Let me know if this is any clearer.

Thank you

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to paul_scotland_5
14th Nov 2018 12:22

It still isn't all that much clearer no.

B is selling to A. B allows A's contractor onto the site under licence to start development works. On date X the purchase from B to A completes.

At date X, to the extent that there are still commercial buildings on the site that are not already in the course of conversion to residential (and so are still commercial), VAT will need to be charged based on an apportionment.

What is A going to do with the completed units? Will any units not be converted to residential? Will any of the units not be sold by A?

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By DJKL
to paul_scotland_5
14th Nov 2018 12:23

I though 7 on my link covered. Are you not confusing reduced rate re building work on a conversion with zero rating of first supply of a new dwelling created from a conversion?

"Can golden brick apply to zero-rated conversions?
Yes. There is a zero-rated supply where a person converts a non-residential building into dwellings or other buildings qualifying for the zero rate, and then sells either the freehold or a long lease. The supply of a golden brick in the converted building can be zero-rated so long as “real and meaningful works” have been carried out."

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to DJKL
14th Nov 2018 12:37

Yes you are correct. Company A will of course be charged 5% by the Contractor A for the minimal amount of works carried out on the Non-Residential Conversion part until the sale and will reclaim this VAT. It will thereafter charge the Purchaser zero rating subject to the Golden Brick being met.

If we accept the definition above ("real and meaningful") what does that mean? Golden brick will likely be achieved relatively quickly after start of works on the new build and therefore is a likelyhood that the conversion element will have had little more than a strip out. So will a strip out meet the definition of "real and meaningful".

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to paul_scotland_5
14th Nov 2018 12:49

Wait!

Company A's the middle party isn't it?

So Company A is buying from Company B, and will ultimately sell to Company C.

Companys A's contractor will build all the new dwellings and carry out the conversions to residential. It will charge 0% to Company A on the new builds and 5% on the residential conversions. Company A will be able to recover the 5% VAT charged by the contractor.

And then Company A will sell the entire site to company C. Provided the entire site is, by then new dwellings, dwellings in the course of construction, former commercial premises that are now converted to dwellings, or former commercial premises that are in the course of conversion to dwellings, then Company A's supply to Company C will be zero-rated.

When Company C goes on to sell the dwellings, it will make exempt supplies, so it can't recover any of the VAT it has been charged.

If at the time of sale of the site from Company A to Company C, there are any unconverted commercial premises, then Company A will need to charge 20% VAT on the site to that extent. If Company C is going to go on and convert those commercial premises to residential and sell them though, it can recover the 20% VAT, as it is wholly attributable to its later zero-rated supply of those dwellings.

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to Portia Nina Levin
14th Nov 2018 13:11

Thank you

'... or former commercial premises that are in the course of conversion to dwellings'

So therefore the non-residential conversion will be 'Golden Brick'? What is the statute Portia? Will a strip out be enough? Or will the fact that it has planning and is commenced a minimal amount of works enough?

Regards

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to paul_scotland_5
14th Nov 2018 14:13

The statute is VATA 1994, Sch 8, Group 5, item 1(a) or (2) in relation to the constructed dwellings, and item 1(b) in relation to the converted dwellings.

1(b) is troubling you. You have an opted site which has 3 commercial buildings on it. Each is suitable for conversion to one dwelling (for which you have planning), and each will have an equal sized plot.

You sell the site having nearly completed the conversion of building 1, having gutted building 2 (in a manner that is consistent with the intended conversion) and not having touched building 3.

You are definitely a person converting a non-residential building to a dwelling in relation to building 1, and you definitely are not in relation to building 3.

So, one-third is definitely zero-rated, and one-third is definitely standard-rated.

You're asking about building 2. To be a person converting a non-residential building to a dwelling, you need to have carried out "real and meaningful works". My view is that, by gutting it in a manner consistent with the intended conversion, you have. HMRC might disagree. The tribunals might get involved.

https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst04700

In practice you'd probably work on all three at once and take each to roughly the same level. I'd suggest taking it a bit further than just gutting it. I'd actually take it to the point where it can't be argued that "conversion" has not begun.

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to Portia Nina Levin
15th Nov 2018 06:40

Thanks both ...

What is the difference here if there is only a VAT registration and NO Option To Tax in place?

Regards

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to paul_scotland_5
15th Nov 2018 10:32

If the intention at the outset is to make one or more zero-rated supplies, the option is unnecessary.

The option might only be necessary if the existing owner was letting the commercial units (and had opted) and Company A was initially going to continue to let them, such that there would be a TOGC. Then VAT would not need to be charged by the existing owner to Company A, which would, in turn, reduce the SDLT (or Sottish/Welsh equivalent).

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