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VAT development

25 June 2013
Issue: 4408 / Categories: Forum & Feedback , VAT

A dentist traded from a property that he had owned for 20 years. On retirement, he spent £200,000 converting the property back to residential accommodation. Before sale, he let the property for six months

I am in a state of panic. A client has traded as a dentist from an old Victorian house for about 20 years. He owns the freehold and has only ever used it for commercial purposes ie no residential use.

As his retirement approached he decided to acquire planning permission to turn the property back into a house (dwelling) and spent £200 000 plus VAT on the project.

VAT on builder services was charged at 5% but materials and professional fees were standard rated. He then sold the property for £800 000. He was VAT registered and claimed input tax on the project costs on the basis that the sale of the house was zero-rated because it had not been used as a dwelling for at least 10 years.

The problem is that the client has now received a VAT visit from HMRC (to coincide with his...

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