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If you own agricultural land, you may be considering building a new dwelling due to the recent relaxation in planning laws. However, there are different VAT positions dependent upon construction and usage.

The good news is if construction is being carried out by a contractor, then their services, including building materials, will be zero rated and the same applies for sub-contractors. But if you are carrying out the work, the building materials will have VAT charged at the standard rate.

VAT cannot be recovered if the dwelling is to be rented. However using the DIY House Builders Scheme, VAT can be recovered if the dwelling will be lived in by you or a family member.

If you are planning to use the property as holiday accommodation or you want to sell the dwelling, then you would have to register for VAT and there would be other tax liabilities.

For zero rating to apply, the building must meet HMRC’s definition of a dwelling.  For example, if the new dwelling cannot be sold separately from the rest of the land, then it is not seen as a ‘dwelling’ and all construction costs will be liable to VAT at the standard rate. Similarly, the DIY House Builders Scheme cannot be used to recover the VAT.

This is a complex and contentious area of VAT.  For advice, please contact Karen Churchill on 01460 64646 or karen.churchill@albertgoodman.co.uk.

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