My client is a VAT registered builder who purchased bare land for £260,000 inclusive of VAT, with the intention to construct new dwellings and sell the freehold interest. He has incurred and recovered input tax on acquiring the land, professional fees, and planning costs. Construction of the dwellings has not commenced but civil engineering works have been completed, which include the pipework for gas, water and electricity and an access road to the site. He is now looking to sell these serviced plots to another developer. Will the sale be a zero-rated supply of partly constructed dwellings?

A serviced plot is not considered to be a partly constructed dwelling. VAT notice 708 section 4.7.4 states ‘you can zero rate the sale of, or long lease in, land that will form the site of a building provided a building is clearly under construction. If you sell or long lease a plot where a building is clearly not under construction, your supply is not zero-rated’. VCONST03540 also alludes to works which have progressed beyond what is commonly known as the ‘golden brick’, that is, beyond foundation level. At this stage in construction the supply can normally be zero-rated.

In your client’s case, works have not progressed above foundation level so this cannot be a zero-rated supply of a partly constructed building; however, this is a supply of land. Usually, the grant, assignment or surrender of an interest in land; a right over land, or a license to occupy land is an exempt supply, unless there is an option to tax in place.

VAT notice 708 section 4.7.2 confirms ‘the sale of bare building land is not zero-rated and would be exempt from VAT, unless an option to tax has been taken out. If the land contains civil engineering works (roads, water and electricity supplies) but no building is yet under construction, the sale would also be exempt from VAT unless an option to tax has been taken out.’

If the client were to make an exempt supply of the land, instead of a taxable supply of new houses or opted land, the input tax in relation to the purchase and civil engineering works would become irrecoverable on the change of intention and would need to be paid back to HMRC. Alternatively, to avoid a clawback of input tax, they will need to make a taxable supply. By opting to tax the land by submitting a 1614A, your client would charge standard rate VAT and avoid any partial exemption issues.

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