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HMRC internal manual

VAT Construction

‘Relevant residential purpose’ - interpretation of terms: category (d) - residential accommodation for students or school pupils: withdrawal of the concession for Higher Education Institutions, mitigating the effect of ‘solely’

As one of the conditions for zero-rating the user of the building must, before the supply is made, provide a certificate to the builder or developer as evidence that the building is intended to be used solely (at least 95%) for a relevant residential purpose.

On 31 January 2014, HMRC announced the withdrawal from 1 April 2015 of a concession which allowed Higher Education Institutions to ignore vacation use when determining how new student accommodation is intended to be used

Until 1 April 2015, those affected could choose either to use the concession or rely on the statutory position.

Transitional rules

Following consultation with those affected, HMRC had widened the transitional rules that determined, which student accommodation buildings that were not complete as at 1 April 2015 could rely on the concession. The revised rules that applied from 1 February 2014 to 1 April 2015 are set out below.

Certificates which relied on the concession to meet the “solely” for a relevant residential purpose test (as student accommodation) would still be valid where:

  • for construction services, the first supply was made before 1 April 2015 and related to a meaningful start to the construction of the building by that date, and the works were expected to progress to completion without interruption (demolition or site clearance works would only be accepted where construction started immediately afterwards)
  • for the first grant of a major interest in new student accommodation, either:
    • a meaningful deposit (for example, on exchange of contracts) had been paid to the vendor (or their solicitor) before 1 April 2015 (options to purchase would not be accepted irrespective of intention)
    • an Agreement for Lease (or purchase) had been signed with the vendor or landlord before 1 April 2015 and a meaningful start to the construction of the building had taken place by that date, and the works were expected to progress to completion without interruption (demolition or site clearance works would only be accepted where construction starts immediately afterwards)

For single developments of more than one block of student accommodation constructed in phases, the above rules applied but:

  • ‘meaningful start to the construction of the building’ meant ‘meaningful start to the construction of the first building’
  • ‘expected to progress to completion without interruption’ meant ‘expected to progress to completion of all phases without interruption’

Other points

‘Continued reliance on the concession’.  If reliance had been placed on the concession before 1 April 2015 then the concession would continue to apply until the building was no longer susceptible for consideration for a change in use charge (typically 10 years from completion).

‘Late Certificates’ - If the recipient of the supplies could demonstrate to the supplier that at the time the supply was made it was intended that the building was to be used in the way certified and that all the other conditions (including transitional rules) for zero-rating were met, then a certificate could be issued later than 1 April 2015 see para 16.6 of Notice 708 Buildings and Construction.