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HMRC have clarified the VAT liability of the construction and first sale of dwellings that are linked to a separate provision of care.
Extra-care accommodation refers to self-contained flats, houses, bungalows or maisonettes that are sold or let with the option for the occupant to purchase varying degrees of care to suit his or her needs as and when they arise.
It does not apply to accommodation in which the occupant needs care or supervision of a type typically provided by an institution.
Some planning authorities in England have classified extra-care accommodation under Use Class C2 of the Town and Country Planning (Use Classes) Order 1987, rather than Use Class C3, which ordinarily applies to flats, houses, bungalows and maisonettes.
While developments reviewed to date have all been in England, it is likely similar issues may have arisen in other parts of the UK where equivalent, but not identical, use classes apply.
HMRC are satisfied the classification for planning purposes is not of itself determinative as to the nature of the building and does not establish whether the building is 'designed as dwellings' for the purpose of the VAT zero rate.
The taxman accepts that extra-care accommodation is designed as a dwelling, and therefore construction and first sale or long lease will be zero rated, if all the following standard conditions are met.
- The dwelling consists of self-contained living accommodation.
- There is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling.
- Separate use of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision.
- Separate disposal of the dwelling is not prohibited by the terms of any covenant, Statutory planning consent or similar provision.
- Statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.
Revenue & Customs Brief 47/11 features the Revenue's clarification; it is limited to extra-care accommodation. The department will look early this year at other types of accommodation and whether or not they too can be considered to be designed as a dwelling.
