Revenue & Customs Brief 66/07

VAT: Treatment of the construction of houses or flats in the grounds of existing care homes, nursing homes or similar buildings.

This brief sets out HMRC’s policy on the VAT treatment of the construction, and first major interest grant of, ‘independent living’ units within the curtilage or grounds of residential care homes. (A ‘first major interest grant’ is defined as the freehold sale or a lease in excess of 21 years, (20 years in Scotland.))

In order for services of the construction, or first major interest grant, of such units to qualify for zero-rating, they must qualify either as buildings ‘designed as dwellings’ or as buildings ‘intended for use solely for a relevant residential purpose’, within the meaning of the these terms as defined in the VAT Act 1994.

Although ‘independent living’ units generally have all of the physical characteristics of a ‘dwelling’, the units only qualify for zero-rating if they meet all the conditions laid down in Note 2 to Group 5 of Schedule 8 to the VAT Act 1994. Where such units have a stipulation in their planning permission that they cannot be used separately from the care homes, of which they form a part, the construction of such units is ineligible for the zero rate, as is the first grant of a major interest in such units.

We have also been asked to consider whether the new units form a building (or buildings) that are ‘intended for use solely for a relevant residential purpose’ thus qualifying the construction of the units for the zero rate.

In our view, the units do not qualify for the zero rate because, if personal care is provided to the occupants of the units, it is either not provided as a zero-rated home or institution would provide personal care or, if it is, it is provided as part of an existing home or institution.

Finally, we consider that such a unit would not qualify for zero-rating as ‘an institution which is the sole or main residence of at least 90 per cent of its residents’, because the units are not institutions.

Issued 5 November 2007