Value Added Tax Act 1994 Schedule 10 Part 2

Residential and charitable buildings: change of use etc. (paragraphs 35–39)

Schedule 10 Part 2 deals with the VAT consequences when a building (or part of a building) that originally benefited from zero-rating because it was intended solely for residential or charitable use is subsequently sold or put to a different use within ten years of completion.

• Where a building received a zero-rated supply because it was intended solely for a relevant residential or charitable purpose, a ten-year monitoring period begins on the date the building is completed.
• If, during that ten-year period, the owner disposes of their entire interest in the premises or begins using them for a purpose that is neither residential nor charitable, a self-supply VAT charge is triggered.
• The deemed supply is treated as a standard-rated taxable supply, and its value is calculated using a formula that takes account of the proportion of non-qualifying use, the VAT that would originally have been charged, and the number of whole months elapsed since completion — so the charge reduces over time.
• Special rules apply where use is mixed (partly qualifying and partly not), and charities using premises as a village hall or for local community social or recreational facilities are always treated as using them for a relevant charitable purpose.