Option to Tax on Residential Property

VAT is being charged on sale of a house, can it be claimed back?

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I intend to purchase a house at auction, that is being sold by the local council. It is and always has been a residential property, but for some reason the council has opted to charge VAT on the sale price. They have provided a copy of their VAT 1614A form declaring their option to tax, and they have not made any exempt supplies in the last 10 years. Putting aside the legitimacy of taxing the sale in the first place, what is the process for claiming this back? I am not buying the property for business purposes and won't be renting it out, so unless I start a VAT registered business in the basement then I'm not going to be able to claim the VAT back!

Is there any standard process for reclaiming the VAT due to the fact it should technically be an exempt sale? Or is the fact the council are opting to add tax simply mean I have to pay it and put up with the extra cost?

 

Replies (7)

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By Ruddles
20th Apr 2017 20:48

If the property is a dwelling then the Council's option has no effect. Tell them to go and whistle for the VAT. And if they resist, stick a 1614D under their noses.

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Replying to Ruddles:
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By stevek2
20th Apr 2017 21:11

Thanks! So I just refuse to pay the VAT, rather than pay it and claim it back from HMRC? What do you mean by stick a 1614D under their noses?

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Replying to stevek2:
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By stevek2
20th Apr 2017 21:20

Sorry, just read the detail of 1614D and its actually pretty clear....

"Use this certificate where you are acquiring a building from a person who has opted to tax that building and you wish that option to be disapplied because:
• you intend to use the building as a dwelling or for a relevant residential purpose"

"You must give the completed certificate to your supplier
before the supply is made."

So I guess this means I simply submit this form to the council before completion of the sale. As its an auction I'll be exchanging contracts on the day, the 10% deposit is supposed to include the VAT so I'll hand the completed 1614D to them at the auction and refuse to pay the VAT element.

Thanks again!

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By shaun king
20th Apr 2017 22:10

The VAT 1614D has no effect in this case as you cannot disapply an option which does not exist in the first instance. You need to speak to the auction house and inform them that the house cannot be sold with a VAT charge because VAT cannot be applied. They will need to speak to the Council to get the price back to being exempt from VAT.

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Replying to shaun king:
By Ruddles
20th Apr 2017 22:20

Almost correct, Shaun. I think you meant to say 'apply' rather than 'exist'. As you well know, I could legitimately opt to tax your own house if I wanted to. Of course that option would have no effect until such time as I was able to grant an interest in the property at a time when it was no longer a dwelling. But the option would nevertheless exist.

But I agree that you cannot disapply an option that doesn't apply in in the first place. The correct procedure is of course to convince the council/auctioneer of the error of their ways. My suggested use of form 1614D was in part tongue-in-cheek and in part a belt and braces approach.

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paddle steamer
By DJKL
20th Apr 2017 22:18

Are you sure the property is a dwelling? Might it have been used by the Council for something else and have a different planning status?

On the face of it having an option to tax on a dwelling appears very strange which makes me suspect that possibly, whilst it looks like a dwelling, it is not a dwelling.

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Replying to DJKL:
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By stevek2
20th Apr 2017 23:29

Just been trawling through the pre-contract enquiries and found a reference to previous use....

"The property was previously let under an agricultural tenancy. The tenant died over 12 months ago."

Seems odd as its a house in a village, with about an acre of land (basically a big garden - not agricultural!)

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