VAT on New Build

VAT on New Build

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I am the director of a limited company which owns a mixture of residential and commercial properties which are currently rented. The company at the moment is not registered for VAT. I recently purchased a house with a large plot of land at the side and we have just been granted planning permission to build a new house. We are going to refurbish the existing house and build the new one with a view to selling them both. My questions are, should I become VAT registered and would I then be able to claim VAT on the purchase of materials for the new build? Secondly, is there VAT to be reclaimed once I sell the new build? Thirdly, How will this affect the properties which I rent out, I am assuming there will be no change, I just don't charge VAT on the rent? Thanks.

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By LuKosro
13th Jan 2015 18:45

Hello

I believe that the questions are a bit too complicated and depend on too many factors to be answered satisfactorily on this forum. What does your current tax adviser say in regards to the VAT issue? He / she should do a cost / benefit analysis on registering for VAT or not. However, most often it will not be advantageous to register for VAT in your position.

If you wish to research a bit on the issues involved:

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction

http://www.hmrc.gov.uk/manuals/vconstmanual/index.htm

http://www.hmrc.gov.uk/manuals/vatlpmanual/index.htm (Especially the "Option to Tax Section" and Anti-avoidance provisions")

http://www.hmrc.gov.uk/manuals/vrmanual/index.htm

http://www.hmrc.gov.uk/manuals/vatregmanual/index.htm

http://www.hmrc.gov.uk/manuals/vatregmanual/VATREG23650.htm

http://www.hmrc.gov.uk/manuals/vatrecmanual/index.htm

 

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Replying to Accountant A:
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By dkbold
13th Jan 2015 21:24

Thanks LuKosro, I'll have a

Thanks LuKosro, I'll have a look through the links you have posted.

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By Steven16
13th Jan 2015 19:36

Yes.

As I understand it:

1. You would indeed be able to claim the input tax back on the building materials for the new residential build. 

2. Once you sell the new build it will also be zero rated, for its first sale. So there is no VAT to reclaim for yourself or for the customer.

3. Is a difficult question and really you should consult with your tax adviser as Lukosro says, the option to tax would not come into play with the new build because it is already taxable under zero rated supplies but it could with your other buildings - worth reading the links. As you say you can probably carry on charging rent without VAT and treat the buildings as exempt but then this would mean you are partially exempt which can sometimes get a little tricky. Could be worth having a company for rentals and a seperate entity for property development if you are unlikely to ever break the VAT registration threshold with the company renting out.

I think my only disagreement with the above is that I think it usually is worth VAT registering - especially if this isn't just a one-off building of a new dwelling.

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By DMGbus
13th Jan 2015 22:05

Complicated!

It is complicated - you need to see a property VAT specialist.

In it's most simple form the VAT situation is as follows::

Eligible to register for VAT (and no option to tax required) because of intention to make taxable supplies (zero rate sale of brand new houses is taxable at the zero rate = 0% VAT)Recover VAT on all costs directly relating to the new buildNo VAT payable on other property income unless complications are present [see bullet points 2 and 3 of my list of 3 complications at end of this post]The company will be partially exempt for VAT purposes meaning that partial exemption calculations will need completing each time (*) a VAT return is completed - if the figures are small enough then some VAT relating to the other [VAT exempt] properties might be recoverable too - some planning as to timing of expenditure is called for in this context

(*) As a trader likely to be consistently eligible for refunds of VAT the option exists to choose monthly (as opposed to quarterly) VAT returns.

Actually you will find it is an interesting and easy job for a property VAT specialist to advise you on (provided full and thorough facts are provided to the adivsor).   Such advisors, as specialists in their field, would most likely charge you fees at a rate of at least £100 per hour ex VAT and in my (biased) opinion will be well worth their fees to you.   Do not seek a VAT advisor who does not regularly deal with VAT in the context of properties.

Complications will arise if any of the following factors are present:

the property is rented out rather than sold after completionany of the existing properties are holiday letsany of the existing lets are let for storage / warehouses

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By LuKosro
14th Jan 2015 00:39

Heh

I am the director of a limited company which owns a mixture of residential and commercial properties which are currently rented. 

We are going to refurbish the existing house and build the new one with a view to selling them both

I believe that the OP`s property company is mainly "develop and rent" rather than "develop and sell". That is why a cost benefit analysis is required in this situation.

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By Martin B
14th Jan 2015 10:55

VAT on New Build

Flagging

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By dkbold
15th Jan 2015 11:40

Thanks everyone for the info. I am seeing my accountant tomorrow, so have a few more questions now. LuKosro, I've read through the information you linked to and its proved useful. Especially the part about the conversion of a non-residential dwelling and the VAT for the conversation.

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