Commercial conversion to Residential Apartment and VAT

We own a commercial property for which we obtained planning permission to convert the lower floor to a smaller retail unit and the top floor into an apartment. We are not VAT registered as yet. The contractor for the upper floor apartment will, I understand, invoice us, plus 5% VAT since it is a conversion of commercial to residential. I would like to be able to claim this 5% VAT ( about £5000) back by registering for VAT. My understanding is that if we sell the apartment after the apartment is built then there will be no VAT in such a sale. But if we will let out the apartment as short term holiday lets and we would have to charge VAT to its customers. At some later point am I able to de-register from VAT as the total revenue will be about £45,000 and will be under the £85,000 threshold? Would we be liable to pay back the VAT reclaimed earlier if we deregistered?

Hi mhsibson,
You are entitled to recover VAT as input tax in relation to taxable supplies made in the course of business.
Please see the guidance below:
10. Introduction to input tax
If you sell a residential property which has been converted from a commercial property then the first sale would be Zero rated and therefore a taxable supply.
Please see the guidance below:
5. Zero rating the sale of, or long lease in, non-residential buildings converted to residential use
At the point of deregistration a stock take would need to be carried out to work out any VAT which would need to be paid over to HMRC.
Please see the guidance below:
7. Business assets and stock on hand
Thank you.