HMRC have been praised for giving construction sector 'a break', after issuing a guidance concerning the VAT position of certain arrangements entered into by house-builders.
A number of such builders have sought guidance on whether the Revenue considers certain transactions involving the supply of new dwellings to be abusive.
The new brief identifies a situation: a house-builder making, in advance of any short-term lets, the first grant of a major interest in the completed dwellings to a connected person who is not a member of a VAT group with the house-builder.
The connected person would then rent out the properties until such a time as they could be sold. The rentals would be exempt and not give rise to input tax deduction on ongoing costs including the costs of the eventual sale (for example estate agency and legal costs). However, deduction of the VAT associated with the original construction would have been secured.
This scenario, say HMRC, would not be abusive.
Corporate tax lawyer Jonathan Legg of Lawrence Graham LLP said: 'This is very good news for the house-building sector. It means that house builders who are forced to grant temporary lettings of newly constructed dwellings should not have to face the double whammy of not being able to sell stock and having an unexpected VAT charge — provided that they structure their affairs properly'.
Last month, the Revenue clarified its policy on the input tax challenges facing house-builders who rent out their properties for a period of time before selling them.
