Value of disused pub

Mixed commercial and residential property sale

The taxpayers bought a public house that had a residential first-floor flat comprising three rooms and a bathroom. They made an option to tax election on the property so charged VAT on the rent to a tenant. But he failed to pay the rent and left the property. The taxpayers sold the building for £52 500.

The sale was treated as VAT exempt on the basis that the pub had no commercial value and £52 500 was a reasonable price for a residential property in the area. HMRC said that a correct outcome would be for 90% of the proceeds to be standard rated as relevant to the commercial part of the property. This was in accordance with an agreement reached between HMRC and the Brewers Society (effective from 1 August 1989 and explained in VAT Notice 700/57) that related to input tax issues on...