Before letting dwellings which are failing to sell in the
current climate, careful consideration should be given to the VAT
implications which may apply.
Many housebuilders may be considering letting new properties
they have built or converted (from non-residential to residential
properties), where it is not yet possible to achieve a suitable
sale. However, by opting to let, rather than sell new or converted
dwellings, the VAT application will be different.
The sale or grant of a long lease (over 21 years) in new or
certain converted dwellings is zero-rated, giving rise to full VAT
recovery for the builder. However, the letting of a residential
property is VAT exempt. Input VAT is not normally reclaimable on
expenditure attributable to exempt business activities. So, the
shortterm exempt letting of an unsold dwelling may affect the
housebuilder's ability to recover input tax on construction and
other costs. A VAT exempt temporary letting may require
