A glossary

Anyone who has had even the slightest brush with VAT will know that it is a very complex tax. Now, multiply that complexity by the intricacy and occasionally arcane nature of property law and one may see that the outcome will be less than straightforward. I have produced a general guide and an article on residential property VAT Triggerpoints

I hope the following glossary will help with steering through some of the difficulties.

• Annex– a building which is joined to or is next to a larger main building usually an extension or addition to a building
• Assign – to transfer the right or interest in a property from one party to another
• Break clause – a clause allowing either landlord or tenant to give written notice after a particular date or period of the tenancy in order to end the tenancy
• Beneficial owner – party deemed to make a supply of property rather than the legal owner
• Blocked input tax – VAT which a developer is unable to recover when constructing a new dwelling. Typically, expenditure on good such as; carpets, fitted furniture, and gas and electrical appliances
• Building materials– goods ordinarily incorporated into a property which attracts similar VAT treatment to the construction services.
• Capital Goods Scheme(CGS) – a method of calculating the recovery amount of input tax incurred on property over a ten-year period, Details of the CGS here
• Certificate – a document issued to a supplier in order to obtain certain zero-rated or reduced-rated building work
• Change of number of dwellings– usually a conversion from commercial to residential, or a single house into flats (or flats into a single house) at 5% VAT
• Consideration– a thing done or given in exchange for something else = a supply. Usually quantified in money, but in some cases non-monetary consideration
• Construction of new dwellings – a zero rated supply
• Contract – legal document detailing the agreement of terms between the vendor and buyer
• Contractor – entity responsible for building works
• Conversion–work on a non-residential building which results in a property designed as a dwelling(s) being created
• Covenants – rules governing the property in its title deeds or lease. May impact the definition of dwellings
• Curtilage– either a garden, or an area surrounding a building which is deemed to be part of the property
• Designed as a dwelling– a property initially designed for residential use, regardless of any subsequent alternative use
• Dilapidations – items that have been damaged during a tenancy for which the tenant is responsible for the cost of repair or replacement. Usually VAT free
• DIY Housebuilders’ Scheme – a scheme which ‘self-builders’ to recover VAT on a new build dwelling or conversion. Details here
• Dwelling– a building deemed to be residential
• Empty house – if, in the ten years before work on a dwelling starts, it has not been lived in, the work may be subject to 5% rather than 20% VAT
• Exempt– a supply that is VAT free. It usually results in attributable input tax falling to be irrecoverable
• Facade– a wall (or two walls on a corner plot) which may be retained without affecting the zero rating of a new dwelling construction
• Grant– a supply of an interest in land
• Holiday home – the sale or long lease of a holiday home cannot be zero-rated even if it is designed as a dwelling
• Housing Association – a non-profit organisation which rents residential property to people on low incomes or with particular needs
• In the course of construction– meaningful works that have occurred in relation to the construction of a building (but prior to its completion)
• Incorporated goods – goods sold with a new dwelling which are zero rated and to which the input tax block does not apply. See white goods
• Input tax– VAT incurred on expenditure associated with property
• Interest in, or right over, land– the right to access to and use of, land. Usually via ownership or lease
• Lease – legal document governing the occupation by the tenant of a premises for a specific length of time
• Licence to occupy– a permission to use land that does not amount to a tenancy
• Live-work units – a property that combines a dwelling and commercial or industrial working space. Usually subject to apportionment
• Major interest–a supply of a freehold interest or a lease exceeding 21 years
• Multiple occupancy dwelling – a dwelling which is designed for occupation by persons not forming a single household
• New building–a commercial building less than three years old the sale of which is mandatorily standard
• Non-residential– a commercial building which is not used as a dwelling
• Open market value – likely sale price with a willing seller and buyer, with a reasonable period of marketing and no special factors affecting the property
• Option to tax (OTT) – act of changing the exempt sale or letting of a commercial into a taxable supply. The purpose is to either; recover input tax or avoid input tax being charged. Details here
• OTT disapplication– the legal removal of a vendor’s option to tax
• OTT not applicable – the OTT does not apply to residential buildings (so VAT can never apply to dwellings)
• OTT revocation– the ability to revoke an option to tax after six months or twenty years
• Partial exemption– a calculation to attribute input tax to exempt and taxable. Generally, VAT incurred in respect of exempt supplies is irrecoverable
• Person constructing – a developer, contractor or sub-contractor who constructs a building
• Premium – upfront payment for a supply of property
• Relevant Charitable Purpose (RCP)–the use by a charity for non-business purposes or for use as a village hall or similar
• Relevant Residential Purpose (RRP)– dwelling used for certain defined residential purposes, eg; children’s home, a hospice or student accommodation
• Reverse surrender– a tenant surrenders an onerous lease to the landlord and makes a payment to surrender
• Share of freehold – where the freehold of the property is owned by a company and the shareholders are the owners of the property
• Single household dwelling– a building designed for occupation by a single household
• Snagging – the correction of building faults. Usually follows the VAT liability of the original work
• Stamp Duty Land Tax (SDLT) – tax paid by a purchaser of a property. SDLT is increased if the sale of a commercial property is the subject of an option to tax
• Substantial reconstruction– certain significant works to a listed building
• Surrender– a tenant surrenders the lease to the landlord in return for payment
• Taxable supply– a supply subject to VAT at the standard, reduced or zero-rate
• Use as a dwelling – a building which was designed or adapted for use as someone’s home and is so used
• Vendor – entity selling a property
• Transfer of a Going Concern (TOGC) – the VAT free sale of the assets of a business as a going concern. This may include a tenanted property
• Zero-rated– a taxable supply subject to VAT at a rate of 0%

We strongly recommend that advice is obtained if any property transaction is being undertaken.

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