A Supreme Court ruling means that care homes that have used leaseback VAT exemptions will not be subject to retrospective VAT charges, says tax advisor Blick Rothenberg.
VAT partner Alan Pearce says the ruling applies to properties used for a relevant charitable purpose.
“When these properties are first constructed, they qualify for zero rating. However, where the construction costs have been zero-rated, there is a self-supply charge that can be can retrospectively applied where there is a dispose or change of use of the zero-rated building within 10 years of its completion.
“This can effectively reverse some or all the VAT savings and result in a significant payment of VAT to HMRC.”
In a recent case involving care operator Balhousie lawyers argued over the VAT implications of sale and leaseback arrangements used to fund the construction of the property or future construction projects.
HMRC saw these arrangements as disposals and, in the case of Balhousie Care, sought to recover over £800,000 of VAT and interest payments. However, at the Supreme Court judges agreed that the VAT charge only applied to a disposal when the liable company was left with no interest in the property.
In the Balhousie case, while the operator had disposed of its freehold interest, it had simultaneously taken back a 30-year leasehold interest and continued to operate the property as a care home. There was in effect no moment in time when Balhousie had no interest in the property, thus the self-supply rules did not apply.
Buying and selling care homes, including finance, will be covered in more depth in our May/June issue, available online at the end of April.