Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

VAT Construction

HM Revenue & Customs
, see all updates

Dwellings - an explanation of terms: what ‘designed as a dwelling or number of dwellings’ means: defending our interpretation of Note 2(c)

Our interpretation of Note 2(c) (VCONST14140) was supported in the decision in Paul Henry Wiseman (VTD 17374),and later in Gill Cartagena (VTD 19454), Martin James Gilbin (VTD 20352) and Michael John Bracegirdle (VTD 20889) .

In Martin James Gilbin (VTD 20352), the wording of Note 2 (c) was analysed in the following terms:

It seems clear to us that condition (c) is satisfied only if there is both no prohibition on separate disposal and no prohibition on separate use. Effectively, it encompasses two conditions. If it had read ‘separate use, and disposal ….is not prohibited’ then if one activity but not the other were prohibited, the condition would be satisfied, but the use of ‘or’ to our minds makes plain that neither separate use, nor separate disposal may be prohibited.

Conflicting views have been expressed about whether an explicit prohibition on separate use also imposes a prohibition on separate disposal.

In Gill Cartagena (VTD 20352), the Tribunal said it did, but in Martin James Gilbin (VTD 20352), the opposite view was taken that a dwelling can be disposed of separately even where separate use isn’t permitted.

Our view is that a prohibition on separate use doesn’t itself mean that separate disposal is forbidden. We agree with the reasoning in Gilbin:

The fact that a subsequent owner would be affected by the planning condition as to its use may mean that the granny annexe would have a small market value, but that would not prevent its disposal either by sale or by gift or by testamentary disposition.

The condition has been interpreted differently. The alternative view that if either separate use isn’t prohibited or separate disposal isn’t prohibited, the Note is met and the building is ‘designed as a dwelling or number of dwellings’. In other words, if the prohibition is only on one of the two limbs of Note 2(c), then it is ‘designed as a dwelling or number of dwellings’. The Tribunal decisions in Nick Hopewell-Smith (VTD 16725) and John Charles Munnery (VTD 17903) support this view. You shouldn’t follow these decisions, as the weight of Tribunal decisions supports our interpretation.

It has also been put forward that the word ‘separate’ only applies to disposal, and not to use of the dwelling. This interpretation was rejected in the case of Philip Thompson (VTD 15834), where the property could be disposed of but not separately from an associated building.