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HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: housing and community projects: housing stock transferred in existing condition

VAT incurred by a registered social landlord (RSL) on refurbishment works to properties transferred in an existing condition (see VATGPB8315) cannot be recovered as it is wholly attributable to their letting activities. This was confirmed by the VAT and Duties Tribunal in South Liverpool Housing Limited (VTD/18750). 

In the mid-1990s some estates in Liverpool were in urgent need of modernisation. The Government made funds available through the Estates Renewal Challenge Fund (ERCF), targeted at those estates which, for various reasons, had negative valuations. The funds, described as ‘dowries’ in the promotional literature, were bid for on a competitive basis by local authorities but were not paid to them. Rather the estates had to be transferred to RSLs who took over the local authorities’ obligations, including responsibility for carrying out the backlog of refurbishments and ongoing repairs.

Liverpool City Council (LCC) successfully bid for ERCF funds and, after a consultation exercise, the estates were transferred to South Liverpool Housing Limited (SLH), the dowry being paid soon after.

SLH argued that VAT incurred on refurbishing the properties could be recovered. This was on the basis of an undertaking given to LCC in the purchase contracts that it would carry out the catch-up repairs and improvements, formerly the responsibility of LCC. It contended that this undertaking constituted a taxable supply by SLH to LCC of relieving LCC of this responsibility. As an alternative it argued that the undertaking represented a supply to both LCC and to the tenants and so should be apportioned between the two. Whatever the case, the consideration was either the ERCF dowry, or a barter transaction by which SLH undertook to relieve LCC of its responsibility in exchange for the transfer of the estates.

The Tribunal took the view that SLH made a supply to its tenants of repairing and improving their homes. This satisfied its contractual obligations to the tenants who had entered into new tenancy agreements with SLH on transfer of the estate. It was only those agreements that required SLH to refurbish the housing. The fact that LCC might have had some interest in SLH carrying out the work did not mean that there was a supply to the Council.

Although in principle SLH’s relieving LCC of its repairing obligations was capable of constituting a supply, the Tribunal took the view that there was nothing in the transfer document to suggest that SLH’s obligation, as expressed in the covenants, were regarded by either party as a separate supply. However, even had the obligation been seen to be a supply, there was no consideration.

In the case of the barter argument, the only consideration that could have been given was negative. In the Tribunal’s view consideration could only be positive. Furthermore, the dowry could not represent consideration because it was not given as an inducement. Rather the money had simply been awarded under the Housing Grants, Construction and Regeneration Act 1996.