THAT LOVELY listed building you see - restored and divided into elegant, easy-to-manage flats - might never have survived the developer's ball had it not been for two factors: large grounds and VAT exemption.

The grounds allow developers to build a small mini-estate of homes that hopefully blend in with the main house. And all repairs, renovations and conversion costs on listed buildings are exempt from 17.5 per cent VAT.

Even in these conservation-conscious times it is sometimes deemed more cost-effective to demolish an unlisted mansion and replace it with yet another scheme of soulless homes. So local authorities often offer the carrot of planning consent for a number of new homes in the spacious grounds surrounding a decaying unlisted house. But, make no mistake, permission would never be granted if there was no historic house to be preserved - listed or unlisted.

David Parry, of estate agents Cluttons Daniel Smith, says: "Developers wouldn't bother without the carrot of new build, because of the onerous VAT charges levied on conversions of unlisted buildings. Some intense lobbying is needed to rectify the ludicrous situation whereby solid but unlisted Victorian and Edwardian mansions are being demolished because the VAT levy could mean the difference between profit and loss."

Godfrey Winterson, of Hamptons International, advises developers on converting rural mansions and says: "The arguments in favour of preserving England's green and pleasant land are environmentally sound. But more should be done to actively encourage the conversion of many more redundant buildings around the country."

The finished product can prove spectacular. So much so that 38-year-old Trevor Herbert, site manager for Grade II* listed 18th century manor, Marley House, set in 60 acres near Totnes, in Devon, bought a three-bedroom ground-floor apartment in the main building for pounds 80,000.

He says: "It doesn't matter how traditional you try to make a new building look. It just won't have the mellow charm of the original although we are trying to replicate that in the new homes being built in the grounds. Because we have no VAT liabilities we have been able to spend that little bit more on restoration."

Jackson-Stops & Staff and Constables are selling the remaining Marley units at pounds 175,000.

Burton House, in West Sussex, is a Grade I listed Palladian mansion set in the 80-acre Burton Park estate. It is being converted into 12 apartments and there is permission for 33 homes in the grounds. Lord Tebbit's 33- year-old City banker son, William, and his wife, Vanessa 32, paid pounds 235,000 for a three-bedroom mews home - one of 10 set in the original walled garden, 200 yards from Burton House. He says: "Nowhere else could we buy a small modern house and share all this private parkland. There is a great village atmosphere and I feel I have contributed towards preserving a slice of our historic building heritage."

In contrast, Rudolf and Marlies Bak, both in their sixties, chose a grand ground-floor apartment.

Mrs Bak says: "We have the elegance of a grand country estate without the responsibility.."

Hamptons International is selling the remaining houses and apartments at Burton Park from pounds 195,000.

Jackson-Stops & Staff: 01392 214222; Constables: 01392 411917; Hamptons International: 01403 211766