The Commissioners for Her Majesty’s Revenue & Customs v Richard Burton.
This recently decided case will affect the ability of some self-builders to recoup the VAT paid on the materials used to build. Under the Value Added Tax Act 1994, VAT can be recouped by self-builders building their own home provided that the property is a ‘dwelling’ and isn’t being built in the course of a business. The case centred around the definition of ’dwelling’. Within the Act ‘dwelling’ excludes properties that are ‘prohibited’ from being re used or sold separately from another property amongst other things.
In this case, Richard Burton built himself a home on the side of the Park Hall Lake Fisheries lake that he had managed since 2004. Planning was granted for the property and a condition of that planning was that the property may only be occupied by a person ‘solely or mainly employed or last employed in Park Hall Lake Fisheries or a widow or widower of such person or any resident dependents.’
Mr Burton built the house and then applied to HMRC for a refund of the £8,565.72 but HMRC refused, stating that the property he built didn’t meet the criteria for it to be a dwelling. Namely, that because it was linked the Fisheries business it couldn’t be used or sold separately from the Park Hall Lake Fishery.
Mr Burton disputed this and the matter was heard before a tribunal of the Tax and chancery Chamber. Mr Burton argued that the planning condition attached to the property only limited the use and disposal and did not prohibit, as the act requires. In the first instance his argument was accepted by the lower court, however, HMRC appealed.
The appeal was heard by Mr Justice Barling, who disagreed with the lower courts assessment of the facts. He held that the limitations on the use included in the planning conditions were binding enough that they amounted to a prohibition under the Act. Justice Barling held that it was clear from the planning conditions that the occupation of the property was always to be linked to the Park Hall Lake Fisheries business.
Self-builders should be aware of the VAT implications of this judgment and budget to pay the VAT where the use of the property and your ability to sell it is restricted or linked to another property, particularly a business property.