Company’s input tax claim on buying residential property

The directors bought a residential property in July 2016. The building had been a public house but consisted only of residential flats at the time of the deal. The taxpayer claimed input tax in its September 2016 VAT return. 

HMRC raised an assessment to disallow the full amount claimed. This was on the basis that the sale of a residential dwelling is exempt from VAT – or zero rated if it is a new build or has been converted from non-residential to residential. It is never standard rated. The seller had charged the VAT incorrectly and only correctly charged input tax can only be claimed. There was also no evidence to support the claim – the seller had not issued a tax invoice.

The flats would either be rented out or sold generating exempt income. A small part of the claim related to input tax on legal fees but HMRC disallowed this...