Both the construction and sale of a new building designed as a dwelling is largely zero rated for VAT purposes. Generally any pre-existing building needs to cease to exist with the only exception in the VAT legislation being the retention of a single façade, or double façade on a corner site, the retention of which is a condition or requirement of statutory planning consent.

Because the sale is taxable albeit at a zero rate of VAT this means the developer can register for, and recover VAT on related expenditure. If the new dwelling is not a new building then the sale is likely to be VAT exempt which does not give the right to VAT recovery.

In the recent tax tribunal decision of M Lennon & Co Ltd, a property developer redeveloped an existing end of terrace dwelling for resale. Due to structural problems the building was demolished all but part of the front façade which was retained to provide support to the party wall with the adjoining building. No planning permission was required for the rebuilding of the house therefore the retained façade could not be said to be retained as a condition or requirement of planning consent.

The tribunal dismissed the appeal on the basis there was no condition or requirement to keep the façade. Unfortunately, the recent reported Astral Construction decision was not referred to. Using the Astral principles in this case may have led to a conclusion that there was a new building on the site as a matter of fact, degree and impression irrespective of the retained section. So perhaps there was a missed opportunity here.

The tribunal also commented on the need for planning consent to be granted for a new dwelling to be zero rated concluding that a property specific consent might not be necessary if the planning regime allowed the works under some general planning consent such as permitted development rights or local development orders.