I own a rental property at present. I am going to do it up and sell it. I am then going to roll the proceeds in to another house, do that up and sell it, etc.....
This will be residential properties and will not be new build.
What is the VAT situation?
Will the sale of these houses be exempt or standard rated?
I will guess at exempt?
If this is correct is it because I own the property?
If I am correct, then do I need to register for VAT?
Andy
Replies (7)
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S161
I had in mind an election under s 161 (3) TCGA which concerns appropriations to trading stock. This would apply to the first property only which he is going to do up and sell so as of now presumably is appropriated to trading stock. I was not referring to the subsequent rolling over of proceeds into new properties for which there is no relief. Reinforces the point that specialist advice really needed.
Direct taxes
presumably you appreciate this would amount to trading so you would have to pay income tax on the profit of each sale....
Get advice
There are really too many unknowns to give a clear and meaningful answer, you really need to sit down and talk to someone about all this.
Agree totally
with Chris but very briefly when you start to treat the property as trading stock that triggers a cgt charge but you can hold that gain over (from memory). However it really is a fraught area and advice would help you minimise tax and avoid other pitfalls.
Exempt
The sale of residential property, excluding its first sale, is exempt from VAT. If your only income is exempt income then you are neither required nor entitled to register for VAT and cannot reclaim any VAT on your costs.
The only exception to this is where a residential property has been empty for more than 10 years as it ceases to be a residential property at that point. The subsequent sale would then be zero-rated as the first sale.
Regards
Paul Taylor
Senior VAT Consultant
Dains
Income Tax
Yes, I appreciate I will have to pay income tax on the profit.
However, I am a bit confused about how capital gains tax and income tax interact.
I have held a house as an investment, which has been rented out, for a number of years, and always assumed that it would be subject to capital gains.
Will the commencement of development trigger a capital gain at the market value, hence setting the cost for income tax purposes?
Or do I use the original cost for income tax purposes?
Or can I choose?