Readers’ forum: Student accommodation and change of use to holiday lets

One of my clients purchased the freehold of a new building four years ago for £550 000 certifying to the developer that it would be used only for student accommodation and was therefore zero-rated as a building to be used for a ‘relevant residential purpose’.

However the business model has now changed and my client will rent out the accommodation instead for temporary lettings to tourists and holiday makers. The apartments will be furnished. There will be no student lettings.

My client will not need to register for VAT – even though the income from temporary lets is VATable – because the projected annual income of £75 000 is less than the £85 000 registration threshold.

But is there a problem with the capital goods scheme – or other VAT legislation – with the change in use ie does the £550 000 purchase price need to be...