In a case which gives useful guidance on the tax treatment of residential occupancy conditions attached to planning consents, a DIY builder who constructed a new home for himself adjoining his equestrian business has triumphed in his fight for a substantial VAT rebate on the costs of materials used in the project.
The businessman built the house, which was situated in the Green Belt, subject to a planning condition that its occupation should be limited to a person solely employed in the equestrian business and any residential dependants. On that basis, HM Revenue and Customs (HMRC) took the view that the project did not fall within the confines of the VAT exemption applied to the DIY construction of dwellings by Section 35 of the VAT Act 1994.
However, in allowing the businessman’s appeal, the First-tier Tribunal accepted his plea that the planning condition, whilst placing restrictions on the occupancy of the dwelling, did not restrict its use or prohibit its disposal. Whilst it was convenient for the businessman to live near his place of work, that was not a ‘functional necessity’ nor was the new house ‘actually required’ for the purposes of the business. The Tribunal noted that the project had been privately financed by the businessman and the house did not form part of the assets of the equestrian centre.