There are four instances where VAT savings can be made when renovating empty dwellings as follows:
1) A dwelling that has been empty for at least 2 years prior to commencement of a contractors works
2) A dwelling that has been empty for 2 years prior to purchase of that property and works completed within 12 months of the date of purchase of the property
3) A dwelling that has been empty for 10 years prior to commencement of works and is subject to a DIY converters VAT reclaim
4) A dwelling that has been empty for 10 years prior to its sale
Each instance is subject to detailed conditions being met including the need to demonstrate that the property has not been lived in for the 2 or 10 year period concerned. It is our experience this is often the most challenging part of securing the VAT savings as every property has a unique past and set of circumstances which must be understood and documented.
The decision whether a particular dwelling has not been lived in for the relevant period is based on the balance of probabilities.
HMRC guidance suggests evidence including data from the electoral register, council tax records, utilities companies, empty property officers in local authorities or any other source that can be considered reliable. HMRC do allow squatters and property ‘guardians’ installed to protect properties to be disregarded.
The reality is that these forms of evidence are not always readily available and it is often necessary to gather and rely on other forms of evidence as well as being more imaginative about how to demonstrate a property was not occupied. The recent tribunal decision of Fireguard Developments Ltd highlighted the challenges of obtaining sufficient evidence and HMRC’s ability to obtain their own evidence if they so choose.
Fireguard had renovated and sold two adjacent existing dwellings in Southport Merseyside. Fireguard sought to reclaim VAT incurred on the renovations on the basis that the dwellings had not been lived in for the ten years preceding the sales. It was agreed that one property had been empty but there was a dispute about the other one.
Fireguard purchased the property in 2016 and sold it in 2017 after renovating it. The property was vacant at the time of purchase. Fireguard sought to reclaim the VAT incurred and HMRC rejected this on the basis there was insufficient evidence that the property had been unoccupied for the ten year period required.
Fireguard relied on a statutory declaration from the previous owner who stated the property had been empty from ‘around 2005/2006’. They also obtained a letter from the local authority that confirmed the property had remained empty since December 2008.
HMRC had made their own enquiries and had obtained electoral register data that suggested various people were in the property between 1995 and 2009 – one resident from 2005 to 2007 and two others from 2008 to 2009. HMRC argued that the electoral register was an independent reliable source of evidence. HMRC also relied on PAYE information which showed an individual registered at the address up to November 2008 which was broadly in line with the council tax letter obtained by Fireguard. Fireguard argued that the evidence collated by HMRC was not reliable.
HMRC argued the statutory declaration was not reliable as the previous owner had an interest in selling the properties and also that the dates were vague.
The tribunal in agreeing with HMRC found on balance that the property was occupied placing particular emphasis on the PAYE and the consistent dates in the council letter and electoral register. The statutory declaration was given limited weight due to its vagueness and inconsistency with dates quoted in it and those given in a separate planning application.
This decision highlights the need to consider in detail the evidence relied upon and to consider a number of reliable and consistent forms of information/evidence which taken together suggest it is more probable than not that a property was not lived in.