Roof Space Flat is New Build

A recent case will come as a relief to developers as it confirms that where a developer creates new self-contained flats out of the empty roof space of an existing residential building, the flats will qualify for zero-rating for VAT purposes.

In the case in point, the developer was a landlord who owned blocks of flats that were let to residential tenants. The developer converted the roof spaces, which had never been used for a residential purpose, into twelve self-contained flats and applied to register for VAT on the basis of his intention to make (zero-rated) taxable supplies.

HM Revenue and Customs denied the application to register for VAT on the grounds that a roof space is part of an existing dwelling and the modifications therefore constituted works to an existing dwelling.

The owner of the building appealed the decision to the VAT and Duties Tribunal, which ruled that a grant of a major interest (i.e. sale of a long lease) by a person who converted the empty roof space of a block of flats into new, self-contained flats qualified for zero-rating for VAT purposes. The roof space was a ‘non-residential’ part of a dwelling meeting the conditions of Item 1(b), Group 5, Schedule 8, Value Added Tax Act 1994.

Accordingly, the landlord was entitled to register for VAT and was therefore able to recover the input VAT incurred when carrying out the conversion work.