Charities’ zero rating of new buildings
HMRC have revised their approach to applications to zero-rate new buildings used for a relevant charitable or residential use. From 1 January 2010 charities will only be entitled to zero-rate if the building is used at least 95% for charitable purposes. The current figure is 90%.
The new guidance has been issued following a number of recent Court decisions. These questioned HMRC’s interpretation of the term ‘solely’ in respect of zero-rating new buildings where there is a relevant charitable or residential use.
Where a new building is to be used ‘solely’ for a relevant charitable purpose (non-business use) it can be zero-rated subject to the charity providing the relevant certification. Historically, there was an extra statutory concession (ESC) which permitted zero-rating under certain conditions.
The new guidance allows taxpayers to rely on HMRC’s revised interpretation of ‘solely’ i.e. where at least 95% of a building is used for relevant charitable purpose the building is eligible for zero-rating.
Where a building is zero rated there will always be a charge on change of use (essentially a claw back from zero-rating) if it ceases to qualify within ten years of the building’s completion.
The ESC permitted zero-rating where a building was used at least 90% for a relevant charitable purpose. The ESC is being withdrawn subject to a 12 month transitional period where charities can choose to use the new revised interpretation or continue to apply the ESC.