Lease-based model of supported housing: VAT considerations

In our December 2023 edition of eNews, we highlighted the risks and applicable guidance relevant to charities operating a lease-based model of supported housing.

As a follow-up to that article, we have asked MHA VAT specialist, Robin Prince, to comment on the relevant VAT considerations:

The construction of a building that is intended to be used as a care home, student halls of residence, village hall or other similar building is subject to VAT at 0%, provided the operator certifies that they will continue to use the building for the same relevant purpose. If, however, the operator changes their use or disposes of their entire interest in the building within the first 10 years, they may be liable to a self-supply charge for VAT at 20%. This self-supply charge will apply even if the new owner intends to use the building for the same relevant purpose.

Following the Supreme Court Decision in Balhousie, it is HMRC’s published policy to not treat the sale and leaseback of a relevant building as being a disposal of interest in the property. Therefore, a sale and immediate leaseback should not trigger a VAT charge. Operators should, however, be careful and seek specialist advice when undertaking such an arrangement, as any break in trade or non-seamless transaction can still give rise to a significant VAT cost.

Robin Prince, MHA VAT specialist