Andrew Needham looks at what is known as the ‘golden brick’ and its effect on the VAT treatment of new residential property in the construction industry.
It is not uncommon, in these cash-strapped times, for construction companies to start work on a housing project and either run out of money or stop building due to a lack of demand for the houses.
Example: Part-built properties
A construction company (Buildit) buys a piece of bare land that the seller has opted to tax, so the purchase is plus VAT. Buildit obtains planning permission to build ten houses and starts construction, recovering the VAT on the purchase price based on the future zero-rated taxable sale of the houses.
After six months, they run out of cash and decide to sell the part-built properties to another construction company. The foundations for all ten houses have been
