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HMRC internal manual

VAT Construction

HM Revenue & Customs
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‘Relevant residential purpose’ - interpretation of terms: exceptions to use for a relevant residential purpose: hospital or similar institution

A building isn’t used for a relevant residential purpose when it is used as a hospital or similar institution.

There is no definition of ‘hospital or similar institution’ in the legislation.

‘Hospital’ was considered by the High Court in Fenwood Developments Ltd ([2005] EWHC 2954. It was held that the starting point should be the natural meaning of the word. In the dictionary definitions, the common element was the provision of ‘medical treatment’.

The meaning of ‘medical treatment’ wasn’t further analysed in the case. In the absence of any guidance, we adopt dictionary definitions of the words as meaning:

  • ‘treatment’ - ‘way of applying remedies’
  • ‘remedy’ - ‘any means of curing a disease; redressing, counteracting or repairing any evil or loss’
  • ‘medical’ - ‘relating to the art of healing; relating to the art of the physician’.

In this context, the contrast is between an institution whose primary function is providing accommodation with any treatment being complementary and incidental (a relevant residential building) and an institution whose purpose is to remedy or alleviate medical conditions in a residential setting (a hospital or similar institution).

Whether a building is used for a relevant residential purpose or as a hospital of similar institution is a matter of fact.

We have analysed the decisions and judgements in the most pertinent cases. As a guide, an institution is less likely to be a hospital or similar institution if:

  • the care given is mostly not medically based (St Andrew’s Property Management (VTD 20499); Fenwood; Hsp of St John & St Elizabeth (VTD 19141))
  • the residents are there for long periods rather than for acute admissions (although short periods don’t necessarily denote an institution is more likely to be a hospital) (St Andrew’s Property Management; Hsp of St John & St Elizabeth)
  • the reason why the residents are there isn’t that they require medical treatment - residents may need care because of disablement or mental disorder but that care isn’t medical treatment (St Andrew’s Property Management; Hsp of St John & St Elizabeth; General Healthcare Ltd (VTD 17129))
  • it normally teaches life skills and addresses behavioural problems (St Andrew’s Property Management)
  • it aims to provide residents with a home, if necessary, for life (Fenwood; Hsp of St John & St Elizabeth)
  • it offers accommodation for people who no longer need, or could no longer benefit from, hospital treatment - for example,. those diagnosed as having personality disorders, a history of self-harm, being labelled as difficult to manage, or having been socially or educationally deprived (Fenwood)
  • the accommodation is intended to become a resident’s permanent residence for the foreseeable future (to that end, they may be invited to decorate it to their own taste, furnish it, allowed to keep pets, and so on) (Fenwood; Hsp of St John & St Elizabeth; General Healthcare Ltd)
  • residents names are included on the local electoral roll (Fenwood; General Healthcare Ltd)
  • there are no diagnostic facilities present (General Healthcare Ltd)
  • there are no in-patient facilities (General Healthcare Ltd)
  • there is a low proportion of medically qualified staff (General Healthcare Ltd).

Long-stay mental health units can pose particular problems, centred around whether the occupants receive medical treatment or personal care. Typically, such units:

  • cater for people that have had their condition diagnosed elsewhere, rather than accepting acute admissions for diagnosis and treatment
  • don’t address the individual’s underlying medical condition with the aim of effecting a cure or an improvement to the condition
  • provide specialist care in a homely environment delivered through a programme tailored to the individual designed to help the person to live as full a life as possible within the limits of his or her mental capabilities. This can take the form of teaching life skills (how to dress, cook for oneself, and so on) or managing behavioural problems (aggression, self-harm, and so on)
  • often remain the occupants’ home for life.

Long-stay units of this description aren’t hospitals or similar institutions.

By contrast, a building that exhibits the following indicators is likely to be a hospital or similar institution:

  • diagnosis of medical problems and an acute programme designed to cure, improve, or stabilise the problem, administered by medically-qualified staff
  • a range of facilities and equipment for diagnosis and interventionist procedures - for example, operating theatres
  • the prescribing and administration of drugs to address the medical condition
  • an expectation that the person will return to his or her home.

This list isn’t exhaustive and is illustrative only of what is a hospital or similar institution. In each case, the facts will need to be weighed to decide if the purpose of the building is to:

  • treat a medical condition
  • provide a person with a home where care or treatment is incidental.