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HMRC internal manual

VAT Construction

‘Relevant residential purpose’ - interpretation of terms: relevant residential purpose - background: what is a ‘home or institution’?

Neither ‘home’ nor ‘institution’ is defined in law. ‘Institution’ can be used to mean two different things. When used in an organisational sense, it means a body or organisation for the promotion of some public object, and also a building used by that body for that purpose. A home is recognised as a place, where a collection of people live together under rules set by a third party.

In this context, a home or institution is a reference to the building and how it is used. The decision in St Andrews Property Management Ltd (VTD 20499) supports the focus of the legislation being on the building (or buildings) rather than who owns or runs it:

We see no real difficulty, giving the words used in the legislation their natural meaning, in holding that as long as the building in question is, as a matter of fact, a home or other institution then it qualifies, in principle, for zero rating.

So long as the building is a separate and independent unit and is used as such in providing residential accommodation, as prescribed in the relevant legislation, it is accepted as a home or other institution. The building must be self-sufficient in providing for the needs of its residents, and that can include buying in services from third party sources.

A building won’t qualify as a home or institution if it used in conjunction with others and collectively they are used as home or institution. However, it may qualify to be so treated if it meets the conditions in Note 5.

In Riverside School (Whassett) Ltd (VTD 13170), the appellant, a residential school, built some new classrooms. The Tribunal decided that a ‘home or other institution’ hadn’t been constructed:

If the opening words of Note 3 [now Note 4] had been -

‘Use for a relevant residential purpose means use for any one or more of the purposes of -,


‘Use for a relevant residential purpose means use as, or as part of, -,

I should have felt little difficulty in deciding the case in the Appellant’s favour. But the words used in Note 3 are ‘use as’. In my judgment, there is no answer to Mrs Brown’s submission that the buildings (which in my judgment together constitute the building referred to in item 2(a), rather than the whole of the buildings comprised in the school) are not ‘intended for use solely as a home or other institution…’ or ‘…as an institution…’ since they are intended for use solely as classrooms and for purposes associated with that use; they are thus intended to be used merely as part of a home or other institution and not as the home or institution itself. In my judgment the effect of Note 3 is that unless a home or institution is constructed as a whole, or substantially as a whole, supplies made in the course of its construction cannot qualify under item 2(a). 

In Derby YMCA (VTD 16914), part of the accommodation at a hostel was upgraded. It was argued that the work to that part of the hostel resulted in accommodation used for a ‘relevant residential purpose’. The Tribunal decided that the part didn’t form an ‘institution’:

I am satisfied that the 10 new self-catering flatlets are the sole or main residence of at least 90 per cent of their residents but, in my judgment, that in itself is insufficient for their use to be that of a relevant residential purpose as defined in note 4(g). To be used for that purpose, they must themselves constitute a self-sufficient institution. …It is quite plain; and I find, that the 10 new self-catering flatlets do not constitute a self-sufficient institution: nor, in my judgment, does that part of Devonshire Court which comprises all the self-catering flatlets now existing. Further, the hostel-style bedrooms and the self-catering flatlets are intermixed on the first floor of Devonshire Court, so that even if the newly adapted flatlets were self-sufficient, I should find it impossible to say that they constituted an institution in themselves.

Consequently, I hold that the newly adapted self-catering flatlets do not qualify as being used for a relevant residential purpose for the purposes of note 4(g).