New VAT rules for the treatment of holiday homes

12 August 2010

Private individuals building their own new dwellings are able to claim VAT on the goods they buy for the purpose, and those converting non-residential buildings into dwellings can claim the VAT on goods and conversion services, under the DIY housebuilders scheme.

This is to ensure they are not disadvantaged compared with those who buy such buildings from a third party builder or converter would not pay VAT because such supplies are zero-rated.

Following a VAT Tribunal decision (Mrs Irene Susan Jennings), HMRC accept that the scheme should also apply to dwellings individuals acquire as holiday homes, where they are not going to use them for business purposes.

So the scheme now applies to such homes provided the person acquiring or converting will not hire it out to third parties. All the normal conditions of the scheme apply.

HMRC are now inviting retrospective claims from private individuals who have constructed new holiday homes or converted non-residential buildings into holiday homes, for non-business use, where the certificate of completion was issued on or after 15 March 2006.

Where claims have already been made for holiday homes, but been refused, they may be resubmitted on the original form.

All claims must be accompanied by the usual supporting documentation such as planning permission, a certificate of completion, building plans, and all original VAT invoices, bills and credit notes.

Clearly, the planned usage of a holiday home will not necessarily be VAT-driven. However, those acquiring or converting relevant buildings should now take these changes into account in their financial projections.