HMRC have issued an information sheet and a Brief on the VAT implications when house builders decide to temporarily let their dwellings before selling them.

Revenue & Customs Brief 44/08 is reproduced below:

“VAT: Partial Exemption-VAT adjustments when house builders let their dwellings before selling them

We have published an Information Sheet 07/08 which provides guidance, including worked examples, on the VAT implications when house builders decide to temporarily let their dwellings before selling them.

This Information Sheet is in response to recent enquiries from the house building sector and takes account of the High Court decision in the joined cases of Curtis Henderson and Briararch [1992] STC 732 which arose in the early 1990s. The key points to which the Information Sheet refers are:

• if you temporarily let a dwelling before selling it, you may affect the VAT you can recover on your costs
• many house builders who temporarily let a dwelling will not be affected but you need to check this to avoid making VAT mistakes
• there is an easy way to check if you are affected by applying what we describe here as a ‘simple check for de minimis’

If you fail this check, you may have to:

• adjust the VAT previously recovered on your submitted VAT returns
• restrict the VAT to be recovered on your current and future VAT returns
• both adjust your past VAT recovery and restrict your future VAT recovery.

If you need to adjust VAT previously recovered, exceptionally and if you prefer, you may be able to do this without contacting us.

Further Information

Further information can be obtained from our website or through the National Advice service on Tel 0845 010 9000. Information Sheet 07/08 provides guidance and further detail is available and supersedes or compliments existing guidance, as appropriate.”