In many areas across the UK, commercial offices and other properties such as pubs are lying empty and unused.
These may be sold and converted into residential property for long-term letting.
The rental income will be exempt from VAT, resulting in the property developer being unable to claim VAT input tax on their costs.
The builder who undertakes the work to convert offices to flats may be able to charge 5% VAT. The owner of the property who cannot reclaim any VAT on their costs, will benefit from getting the work done with only 5% vat on top.
A further advantage can be obtained by ensuring that the contract with the builder is to “design and build” The architect will charge 20% vat on their services but to the builder. These costs will be passed on to the developer who therefore only incurs 5% on the design. If they had engaged the architect directly, they would have suffered 20% vat.