Readers’ forum: Change from commercial to residential

I have a client who bought a commercial property in a limited company (HH) to convert into a wedding venue. The purchase price was £200 000 plus VAT and the company claimed input tax because of a link to intended taxable sales ie wedding fees. My client did not opt to tax the company’s interest in the property with HMRC.

However the company has failed to get planning permission and the director now wants to demolish the property and build two new luxury homes which he has been told he would get planning for without any problem. He intends to sell one house on the open market and keep one himself. Does this mean the company can only claim 50% input tax on the cost of professional fees and building materials ie because he will live in one property himself (non-business) and only one will be sold (zero-rated...