The tax regime relating to property has played a central role in the Government’s drive to create more new homes. In a case which shows the importance of tax policy, a tribunal has favoured a broad interpretation of VAT legislation and found that a house in multiple occupancy can properly be viewed as a zero-rated dwelling.

A developer purchased a commercial building and converted it into a residential property with 10 bedrooms. Each occupant had his or her own room key, but they shared utility bills and a communal kitchen. Two of the rooms were en-suite, but occupants of the others shared two bathrooms between them.

The developer sought a £45,000 VAT rebate on the purchase price on the basis that the property had been transformed into a ‘dwelling’ that consisted of self-contained living accommodation. HM Revenue and Customs, however, disputed the claim, arguing that, because of its multiple occupancy, the property could not be a dwelling within the meaning of Schedule 8 of the VAT Act 1994.

Upholding the developer’s appeal, however, the First-tier Tribunal (FTT) noted that the objective of the Act was to zero-rate the creation of new homes where none had existed previously. Interpreting the Act in line with that purpose, the FTT found that a property in multiple occupancy can be a dwelling within the zero-rating provisions.

When faced with an interpretation of tax law that runs counter to the policy considerations which gave rise to it, it is common for tribunals to prefer an interpretation that is in keeping with clear public policy objectives.