Readers’ forum: Is a special partial exemption method needed?

One of my property developer clients has purchased a plot of land and has incurred over £200 000 of legal and professional fees getting planning permission to build a block of 35 apartments plus ground floor commercial units.

My client has registered for VAT for this project alone and opted to tax the land. The VAT challenge is that my client is unsure whether the apartments will be sold at the end of the project or more likely rented out on either a long-term letting arrangement or short-term Airbnb.

My gut instinct is to claim all of the £40 000 input tax on the first VAT return because there are two potential VATable outcomes and only one exempt outcome for the flats. Also the income from the commercial units will definitely be standard rated because of the option to tax election. But is my thinking correct?...