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Zero-rating for disposal of listed building

13th Oct 2021
VAT Consultant vatadvice.org
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Zero-rating for disposal of substantially reconstructed listed building

We don’t see many of these!

The window for zero-rating of approved alterations to listed buildings finally closed on 30 September 2015. From then the only relief was the disposal of a listed building which has been subject to substantial reconstruction. Group 6 to the zero-rate Schedule provides for this.

Note 4 provides that a substantial reconstruction incorporates no more of the original building as it was before reconstruction began than the external walls and other features of architectural or historic interest.

The FTT considered this provision in the case of Richmond Hill Developments (Jersey) Ltd. The company had incurred £95m of works to the Royal Star and Garter Home near Richmond Park. If the disposal of the property was zero-rated, the company could have recovered input tax on the reconstruction. If not, then the disposal reverted to exempt, so losing the input tax. The option to tax is not available, since Group 6 only applies to buildings which will become dwellings or RRP or RCP buildings, which are not subject to the option to tax.

Para 48 of the decision highlights the way zero-rating is carefully restricted. So Note 18 to Group 5 provides that, if an existing building is to be demolished to make way for a new building, a façade can only be retained in quite specific circumstances. Similarly, Note 4 to Group 6 provides that substantial reconstruction requires almost entire demolition. The Tribunal commented that Parliament did not intend that zero-rating could be allowed more widely.

Moving to the details of this case, the Appellant taxpayer had admitted that a number of items were retained; external walls, the roof, the truss (being side steels cast into the walls), and the chimney stack (para 60). This list goes beyond the ‘external walls and other features’ in Note 4. The Tribunal held that these items were more that a de minimis item. Indeed, some 7% of the floor space of the building was occupied by the retained items.

This meant that zero-rating could not be allowed.

The Tribunal went on to consider the broader EU principles of fiscal neutrality and proportionality. Neither helped the Appellant.

The decision is here: www.bailii.org/uk/cases/UKFTT/TC/2021/TC08232.html

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