Beware The Listed Buildings Trap

10th April 2012

VAT: Withdrawal of VAT Zero-rating for work to Listed Buildings

Hidden away in the small print of the Budget is a fairly significant pooh-trap, which if you happen to be the owner of a Listed building will be relevant to you. The Chancellor announced in this year’s Budget that the zero-rate of VAT would no longer apply to “approved alterations” to listed buildings taking effect from 1 October 2012. This unwelcome news comes at a time when financial pressures on maintaining heritage properties are already at a critical level. The measures are quite complicated, but potentially could affect owners of listed buildings significantly.

Here are some answers if you are an owner of a listed building who is part-way through a construction project, or who may be contemplating such a project in the near future.

I am in the middle of a project – will I be affected?

If you entered into a contract with a builder prior to Budget Day (21 March) the supplies made under that contract can continue to be zero-rated if supplied before 21 March 2013. If the work continues on or beyond that date, VAT at 20% will be due on that part.

I am about to sign a contract – what is the position?

Only work done before 1 October will be zero-rated. Any work performed after that date will be standard-rated.

Can I use the VAT time of supply rules before the October deadline?

Normally, a pre-payment or pre-invoice before 1 October 2012 for work to be done after that date would create a VAT ‘tax point’ which would benefit from zero-rating. However, in this case special anti-forestalling rules would have the effect of adding VAT where work continues beyond 1 October (though only on that part).

Are there any other changes?

Sales or long leases of reconstructed listed buildings are currently zero-rated, but this is also being severely restricted from 1 October. Approved alterations are to be added to the listed Places of Worship scheme, so there may be a compensating gain in the case of a church or chapel.

There is therefore a brief window of opportunity to have work done at the zero-rate, subject to the current rules which briefly are:

  • the building must be used for a residential or charitable purpose
  • the work must be an alteration (and not a repair)
  • the work must require listed building consent
  • the work must receive listed building consent

This is another tax on property raised by the Coalition Government. If you are intending to carry out alterations and have already budgeted you may wish to reconsider or to review your budget!

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