Hi
I have a house i want to rent out. Obviously this will come into the INcome From Property on my tax return.
If i registered for VAT, could i claim back the VAT on costs of doing the house up, and ongoing maintenance etc? The rent would be zero rated (or outside the scope??).
Thanks a lot
Paul
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Replies (4)
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Thanks for the guidance. I thought that was the case, but wanted to check. Thanks for your time.
Best wishes
Rental income be zero rated?
You may have misunderstood, rental income is Vatable and tenant would not be happy because it would increase their cost as they would be not able to recover any VAT
Unfortunately, no.
Renting out a house is exempt from VAT. Renting out of commercial proeprty can be subject to VAT but only if the landlord has elected to waive the exemption (commonly called the option to tax). This facility does not apply to residential property. As a consequence, you would not be entitled to register for VAT on that basis and cannot reclaim any VAT incurred on renovations and maintenance. If the house has been empty for more than 3 years, the renovations might qualify for the reduced rate of 5% but the subsequent rental is still exempt and the VAt cannot be reclaimed. Remember though, that the VAT inclusive costs can go into your income tax calculations as deductions under the appropriate rules.
Simon - You posted whilst I was typing - but confirming your pos
Rent, when related to a residential property is always an exempt supply. That means you cannot charge VAT on the rent and you cannot recover any input tax you incur. HMRC will refuse any application to register for VAT if your entire income is exempt.
Zero rate is a taxable supply, basically you still charge VAT but at 0% so you can still recover input tax, etc. Exempt is not a rate of VAT, it is not 0%, it just means you cannot charge VAT at all. Outside the scope of VAT is a very slim list of activities, usually performed by statutory authorities such as MOT's, council tax who can reclaim VAT back via a different route (Section 33).
Rent to a commercial property can either be exempt or standard rated and is dependant upon the owner deciding if they want to opt to tax the property. You cannot exercise an option to tax on a residential property (it will be exempt)....unless the house is to be used for a commercial purpose (ie, an old house used by a dentists/solicitor firm for instance).
If you are renting it as a house for residential purposes, then it is exempt. Sorry about that!.