Budget Blog: Goodbye to Listed Building VAT Relief

 Unless I have been day dreaming, there was no hint that the government was going to abolish the VAT zero rate on residential listed building alterations, a relief that also applies to a limited class of buildings used by charities. For me, this is a matter for some personal unhappiness. Over many years I have advised on listed building works, and have learnt a good deal of interesting stuff about listed buildings in the process. And I won't try to hide that I have also earned some fees, and have developed a service line which is now rudely to be cut off. But my biggest issue with the position is just how perverse are the reasons given for doing it.

If anyone thinks that my deployment of "perverse" as an accusation is a bit colourful, then I point them to HMRC's consultation document which uses that word twice in describing the rules that currently zero rate approved alterations to those kinds of listed building. But they are wrong on that score for a variety of reasons which I will now explain.

First, it helps to understand how the relief applies. It applies only to approved alterations to such buildings, and specifically excludes repair. At first consideration this does appear to be an anomaly, and even "perverse". And that is because it gives a more favourable tax treatment to changing a listed building than to preserving it as it is. 

But the fact is that it is not possible under European law to extend the zero rate to repairs (though the lower 5% rate could be), so it is not possible to swap the two categories and thereby incentivise the use of repair over alteration (again, unless trying to tinker with the reduced rate). On that basis there is no perversity in preserving a tax relief for one class of work, since it is not a substitute for a relief on another class of work, and does not displace another relief.

They could be right if, as they claim, the tax relief is sufficient to change behaviour of the owner so that he decides, for tax reasons, to do an alteration rather than a repair. But this strikes me as a case of intellectual dishonesty on their part. Do they really think that an alteration is thereby rendered less expensive than a comparable repair (though by definition there cannot be a comparable repair in any case)? Of course not. The alteration will be more expensive. The relief does not apply to alterations where the materials used are merely cheaper than simply repairing the existing materials. Replacement is classed as a repair already. An alteration needs to be a genuine one, requiring listed building consent, in order to qualify for the relief. So it will invariably involve considerable extra cost. The VAT relief reduces that cost, but not to the point where it would affect a decision as to what to do with the building.

Please see http://www.haysmacintyre.com/blog/Budget-Blog-VAT-on-Listed-Buildings.aspx as it is c. 2,000 words, too long for this space.

Written by Graham Elliott  MBA  CTA

Tax Writer of the Year 2011 & my husband

Published on 22 March 2012

Twitter – VatDaddy