Under what circumstances are residential buildings exempt from VAT?

Residential buildings are exempt from VAT primarily when they are sold as freehold or leased for periods longer than 21 years. This exemption is designed to alleviate the tax burden on residential housing, which significantly impacts affordability and accessibility in the property market.

In the context of VAT, the rationale behind exempting long-term residential properties from VAT is to encourage the availability of housing and to make it more affordable for individuals and families. By ensuring that these properties are not subject to VAT, the government supports the housing sector, allowing buyers to purchase homes without the added cost of tax.

For this reason, the correct answer is linked to the length of the lease or the nature of the sale (i.e., freehold), as both conditions help determine whether a residential building qualifies for exemption based on its intended use and duration of occupation. The other options do not adequately reflect the established VAT rules surrounding residential buildings. For instance, sales at auction do not inherently influence VAT status, leasehold ownership does not directly relate to the duration required for exemption, and the age of the property alone is not a determining factor for VAT exemption unless it relates to the provisions set out in tax legislation.