Last month HM Revenue & Customs (HMRC) issued an update to its guidance on VAT and assets of historic houses, replacing that previously issued in 2002.
The guidance reconfirms that assets sold from a house used as a private residence are not normally business assets and therefore fall outside the scope of VAT. However, where a house charges admission, ie the house is used for business purposes, there is a presumption that assets such as antiques, furniture and works of art on public display are business assets for the purposes of VAT. Where such are disposed of, they therefore fall within the scope of VAT.
Such assets can, however, be treated as private assets if the owner elects to do so, and can demonstrate they are private assets. That means that VAT will not be deductible on their acquisition or accounted for on their disposal.
Sean McGinness, Director, VAT, at Saffery Champness and a member of the firm’s Landed Estates Group, comments:
“Historic house owners should be aware of the VAT traps they can encounter. These include not making a clear distinction between private assets and those held for business use, and also the ‘tainting’ of private assets by putting them to occasional – and sometimes inadvertent – business use.
“The most important point here is to make your intentions clear to HMRC where private assets are used for business purposes. The updated guidance suggests phoning the VAT Helpline, although our recommendation is to write to HMRC so that everything is on record. This should help to prevent disputes arising in cases where the position is not otherwise clear. A private asset could easily be ‘tainted’ by occasional business use and, given HMRC’s presumption that business use brings the assets with the scope of VAT, making your position clear from the beginning is essential.”