Readers’ forum: VAT issues on conversion to two houses

My client is a property developer and has received conflicting VAT advice about a proposed project. The client intends to purchase the freehold of a public house from a brewery – it is no longer trading – and planning permission is in place to convert it into two semi-detached houses. My understanding is that the sales of the houses will be zero rated. However a VAT consultant has said that because the pub includes an owner’s flat on the first floor the house sales will be exempt from VAT.

Another consultant says that this is not relevant because the flat in question did not have its own kitchen and therefore failed the conditions of a dwelling; the flat occupier had to use the kitchen in the downstairs part of the building (ie the pub kitchen). So the pub is wholly non-residential and therefore future sales of the...