Global investment into the UK student housing sector is growing and is set to grow further as an asset class providing stable long term income streams and rental growth with the UK being the second most popular post graduate destination for international students. Part of the alternatives class of assets, it is governed by its own rules and risks with a mix of residential and commercial property considerations.
We have mentioned below some practical examples of where things can go wrong, to highlight some of the risks inherent to investment in student accommodation.
VAT Recoverability - Trying to obtain zero-rating eligibility to ensure the recoverability of VAT is a recurring issue in student accommodation development.
Example: - The builder/developer charges VAT on the construction costs. The owner of the property attempts to reclaim VAT but HMRC determines that no VAT should have been payable so it cannot be recovered (as the developer should have zero-rated). The owner can end up having paid millions in irrecoverable VAT.