My client has planning permission to build a new dwelling next to an existing dwelling however due to development constraints in the area there is a condition that states the existing dwelling will be ancilliary accomodation to the new build (to prevent selling on separately). The HMRC VAT reclaim guidance clearly states that ancilliary dwellings are not eligible for VAT reclaim however I'm finding the criteria for this situation a bit murky. The new build is a dwelling in its own right but it is also attached by condition to the ancilliary dwelling. I've written to HMRC to clarify but no response as yet. Does anyone have any expeience of this? Grateful for any advice.
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The relevant wording is in para 14.2 of HMRC notice 708 https://www.gov.uk/government/publications/vat-notice-708-buildings-and-...
If the client cannot sell the annexe separately the 'dwelling' test is not met.
I think Les is overplaying the guidance, because it doesn't actually say what he says it says.
If you are building a new building that will itself be a dwelling and you just cannot sell the new dwelling separately from the old dwelling, you will have constructed a building designed as a dwelling.
However, if the new building and the existing building are going to function together in some way as a larger dwelling, then you have only constructed a building that is designed as part of a dwelling, thus not satisfying the test.
That being said, you should take paid for professional advice, and not rely on anything HMRC tell you, by letter, by phone, or in any guidance that does not have the force of the law. Relying on advice off random folk off the internet also isn't sensible.
EDITED; Because I'd amended what I was saying, and then left remnants.
If you get written advice from HMRC that says what you want it to say, then you can rely on it. You have more chance though of either (i) not getting a response, (ii) getting a response that is just unhelpful, or (iii) getting a response that doesn't say what you want it to say, but which isn't necessarily correct.
Most of their guidance around annexes envisages the new building being the annex to something that is pre-existing, rather than the other way around. Also, if the two things are completely separate (save that they must be sold together) then you are not helping yourself by calling the old bit an annexe.
If you have your own accountant, maybe they have a VAT specialist, otherwise look in your local area for somebody that specialises in VAT on property; it's a complex area.
Looking at the legislation, the section in the guidance does come from the legislation, but the separate disposal condition is, in my opinion, in anticipation of a building being built that contains separate dwelling units, and shouldn't be applied in a situation where a new building is being built containing a complete dwelling and there just happens to be a pre-existing dwelling on the site, with the two things having to be sold together.