In a ruling which helps to define the concept of ‘residential conversion’ of property, the First-Tier Tribunal has rejected a couple’s plea for a VAT rebate in respect of building materials and services employed in their DIY transformation of a derelict former care home into a single private residence.
The property was originally built as a farm worker’s cottage but was acquired in about 1850 by a daughter of Queen Victoria as a home for what were described as ‘feeble-minded’ persons. The premises were in use as a care home until 2008 and stood vacant for two years until acquired by the couple in an advanced state of disrepair. The property was relieved from Council Tax due to its uninhabitable state and the couple received a local authority refurbishment grant.
The couple argued that they were entitled to a VAT refund by virtue of section 35 of the Value Added Tax Act 1994 which provides for rebates in respect of building materials and services employed in the DIY conversion of non-residential buildings into dwellings. Their entitlement to such a refund was disputed by Her Majesty’s Revenue and Customs.
It was submitted that, during its life as a care home, less than 30% of the property had been used by residents alone and that the majority of its floor space had been utilised by residents and staff or staff alone. A rebate of £10,109 was sought on the basis of an apportionment between residential and non-residential uses.
However, in dismissing the appeal, the Tribunal ruled that the historic use of the care home had to be viewed as a whole and that the entirety of the property had, prior to its closure, been utilised for a relevant residential purpose within the meaning of note 4(b) to group five of schedule eight of the Act.
Finding that no rebate was due as the residential use of the property had not ceased more than 10 years prior to the commencement of conversion works, the Tribunal noted that the purpose of the rebate provisions was to encourage additions to housing stock through the conversion of non-residential property to residential use. Notwithstanding the property’s dilapidated state on acquisition, its use as a care home up to 2008 was fatal to the couple’s claim.