Holding company or not, VAT and tax across group companies

We are a small property development limited company, trading 4 years. We usually build individual new build homes. We have bought a farmhouse which we are going to renovate and either sell or let. Our mortgage broker has found us a good deal but the mortgage company are asking us to create a new non-trading company to hold the property in. Can I set up a 'NEW' non-trading company and have the mortgage tied to that whilst still trading from the 'ORIGINAL' company? I am having difficulty understanding some of the finance practicalities of this setup. Example: I setup GROUPCO company and buy a property for £250,000 through GROUPCO. The property has been empty for more than 2 years so I need only charge (and be charged) the reduced VAT rate of 5% instead of 20% on most transactions, (similar to the 0% rate for new build properties) I did check with the VAT office. The original company (ORIGCO) becomes the subsidiary to GROUPCO and carries out all the works and services and all the ongoing day-to-day business, VAT & CIS returns etc., on the project. At the end of the project ORIGCO charges GROUPCO for all the work and services. ORIGCO is VAT registered so charges VAT at 5% to GROUPCO on most of the project (eg: materials and labour) and 20% where relevant. GROUPCO can't claim the 5% back (and at this stage they are not VAT registered anyway). Some parts of the project are not liable to VAT, for example where tradesmen are not VAT registered, and some parts of the project are not eligible for the reduced rate of 5% VAT, for example white goods and some professional reports (charged at 20% VAT). I am trying to calculate what my best options are (overall financially, time taken up, cash flow, additional accountants fees...) and am happy to do that but I am not clear on HOW I allocate/reclaim these different items.. Questions, using an example: Through ORIGCO: I buy blocks for £5,000+20% VAT(£1,000) TOTAL £6,000 I pay a labourer £1,000 He is not VAT registered TOTAL £1,000 I pay for white goods £1,000+20% VAT(£200) TOTAL £1,200 Via my ORIGCO monthly VAT return: Q.1) can I reclaim ALL the above VAT (£1,200) OR Q.2) Can I only reclaim £750 of the £1,000 VAT (so ORIGCO has effectively paid 5% VAT) and none of the £200 for the white goods? AT THE END OF THE PROJECT: ORIGCO charges GROUPCO £6,000 + 5% VAT (blocks & labour) = £6,300 £1,000 + 20% VAT (white goods) = £1,200 Q.3) Is the above statement correct? The above scenario does mean that I have paid an additional 5% for my labour. Q.4) Can I put non-VATable goods and labour through GROUPCO and then never have to pay or charge VAT on those goods & services? (but then I would need to set up a CIS scheme, which would have its own costs...) Q.5) After the sale of the property would GROUPCO then need to register for VAT? Sorry that was so long - I tried to make it as short as possible and Many thanks for any help, Janet