Andrew Needham looks at what VAT adjustments are required when a housebuilder constructs a house which they can’t sell, and decides to rent it out instead.
When a housebuilder constructs a new house and intends selling it, it will be making a zero-rated taxable supply and will be able to recover all the VAT on the building materials and professional costs.
However, if the builder intends to rent it out, even temporarily, it will be making an exempt supply and will need to make an adjustment in the amount of VAT recovered.
VAT consequences
There are a number of possible scenarios the builders will have to consider with regard to how to deal with any possible VAT adjustments. If the builder intends to no longer sell the house but to rent it permanently, then they will need to repay all the VAT reclaimed on the building costs.
If a builder
