VAT Question of the Week (15th July 2016)

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08 Jul 2016

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Q. My client and his wife are directors of a limited company that operates a nursing home. They own the freehold of the premises personally and charge a rent to the company. They are currently looking to establish a new nursing home in a different location and again they would like to own the property personally and run the home through the company. They are considering their options and are not sure whether to buy a new care home from a developer or purchase a piece of land and engage a building contractor to build the home for them. I understand that there is a certificate that can be issued in order to obtain zero-rating on new nursing homes. Will my client be able to issue the certificate in both scenarios? A. The ability to issue a certificate to obtain zero-rating for a building to be used solely for a relevant residential purpose depends on the type of supply that is being received; that is whether a business is obtaining construction services for a building on land it owns or if a business is buying a building that has already been constructed by a developer. If your client engages a building contractor to construct a new building on land that they own the declaration (certificate) must confirm that it is your client, as the recipient of the supply, who will use the building for a qualifying purpose. This will not be the case here as it is the limited company that will be using the building for a qualifying purpose. However, if your client decided to buy a new nursing home that has already been constructed by a developer (either freehold or a long lease) the declaration confirms that it is the building that will be used for a qualifying purpose and that use need not necessarily be by your client. Therefore, in your client’s case, as the qualifying use will be by your clients company it would be advisable to go for the latter option. The VAT legislation surrounding relevant residential buildings such as nursing and care homes and also student accommodation is complex and advisors working in this area need to be especially cautious because there are numerous traps for the unwary. It is easy to underestimate the complexities of such transactions and getting it wrong can easily result in a substantial irrecoverable VAT cost. If you have a VAT query on relevant residential buildings, why not contact the VAT Advice Line on 0844 561 8101 to discuss the implications? Our team of experts have a wealth of experience in land and property issues and can also provide a written consultancy service at £180 per hour plus VAT.

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