Can landowner charge VAT on new self-build project?
One of my builder clients is buying a piece of land from another business, and he will build his own house on the land for him and his family to live in; there is already planning permission in place for the construction.
My client understands that he must keep the costs of construction out of his business accounts and that he can claim the VAT on building material costs through HMRC’s very generous DIY scheme. He will do a lot of the work himself, and the contractors he will use for some of the work will not charge him VAT because their supplies will be zero rated. He also realises that the VAT he pays to architects and surveyors will be a cost that he cannot claim.
A spanner in the works is that the landowner, at the eleventh hour, has said that he must charge 20% VAT on the sale because he has opted to tax. I advised my client to tell the landowner that he will use the land to build a new dwelling, and the option to tax can therefore be overridden as per HMRC Notice 742A, para 3.7, but the landowner has said that the sale is either ‘plus VAT’ or ‘no deal’ and will be aborted. Is the landowner within his rights to still charge VAT, despite para 3.7? If so, why would he want to do this, which creates a major and unnecessary cost for my client?
Query 20,679 – Speculator.
An unexpected situation
I read with Rachel Mayston’s article (Taxation, 5 February 2026) on the pre-owned asset tax regime with great interest. I found it a very useful reminder of a difficult area, but it did cause me to wonder about one particular point that relates to a situation I have come across in practice.
In the section headed ‘An unexpected situation where POAT can arise’, the author states that a POAT charge would arise where a child purchased a partial interest in a parents’ home for full market value, because this would satisfy the ‘disposal condition’. The disposal condition is defined in the earlier paragraph headed ‘Land and goods’. The condition is stated to arise where a person gives land or a chattel to another person, who then sells it and uses the proceeds to purchase new land or chattels that the donor then enjoys.
Where a child buys a partial interest in a parent’s house for full market value, it is not obvious to me that the disposal conditions would be met. There will have been no reduction of the parents’ estate and, as such, nothing on which a POAT charge could be triggered?
A child-funded ‘equity release’ is something that I see from time to time and which is surely quite common. If the POAT rules are applicable in this situation, this could be a major issue for many families and mean that there are undisclosed tax liabilities. Is there really a tax problem here? I’d be interested to hear other readers’ views.
Query 20,680 – Concerned.
Release of loan between commonly owned companies
We have a client that controls two companies that are not in a group for any tax purposes, but they are connected. One has surplus cash and has lent funds to the other for commercial investment purposes. The loan is documented, although terms are not entirely arm’s length (eg interest hasn’t been charged).
If the borrower later cannot repay and the lender releases the loan, what is the correct tax analysis? I don’t believe CTA 2010, s 455 is in point, but does a release fall within s 1000(1) as a distribution? I’ve heard that it could be and that if that is the case there is no scope to net off the fact that one company has increased in value while the other has decreased.
In addition, how much weight should be given to commerciality of the loan, eg the loan relationships unallowable purpose rules, or even inheritance tax transfer of value concerns?
I have not seen HMRC take the distribution point in practice, but would welcome readers’ views as to whether this is a real risk or largely academic.
Query 20,681 – Legislative Labyrinth.
Professional obligations
The recent decision in the Sehgal (TC9696) case – where the existing of a storage unit meant that a property qualified for the reduced mixed-use rate of SDLT – got me thinking. I think most readers would have said that there was next to no chance of such a claim being accepted. As I understand it, as professional advisers we can only advise clients on a filing position that is more likely than not to succeed. But if that approach had been taken here, the claim could not have been made in the first place – effectively the argument would have been conceded before it was even made.
Where do we stand on this issue (not just in relation to SDLT but across all our work). Can we advise clients – with proper warning and risk management – to take a position where we think that HMRC is more likely to win than the client is, but where there is at least a respectable argument that HMRC could be wrong.
How do readers deal with these issues in practice?
Query 20,682 – Worrier.
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