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Building a domestic to let property

Building a domestic to let property

Good morning.
So, a builder owns a limited company. Vat registered.
He wants to build a house to rent out personally.
So, if he built it himself (ie not through company)

A) as he intends to rent it out would this fall fowl of the vat reclaim on self build ie not allowed to reclaim vat on the build? (ie it says if the building is built by a landlord then vat may not be recovered).

B) if he built it through the company, claimed the vat in normal way, then company charges him market value for the house, Can the company zero-rate the invoice to the director even though the director will be renting it out?

Many thanks in advance


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10th Apr 2012 10:13

Go with B

As you say DIY claims are only on non-business works, so where he intends to live in it or allow someone else to live in it for free.

So if renting out the DIY scheme is a no go as the DIY scheme is intended to put someone on the same footing as a VAT registered trader building the same house, and if a VAT reg person built it their rental income would be exempt and hence they'd be barred from recovery.

However if the same trader went to a builder and got them to do the work instead of doing it themselves then the job is zero rated. So that's what your client should do. In this case he's got a nice simple path to a builder he trusts (!?!) and so long as the planning permission's in order and the house can be used as a house (no bars on occupation, disposal or use) then they can zero rate the job. [Of course white goods and carpets, furnishings etc are still going to include VAT, however on the plus side if the company gets in the architect and surveyors then they'll get the VAT back which he wouldn't under the DIY scheme].

From a VAT point of view a market value might not even be necessary, as all that would happen is that HMRC would say 'instead of not charging VAT on £100,000, you've got to not charge VAT on £200,000' so no harm, no foul. Of course there are direct tax implications of not doing a market value, such as benefits in kind, DLA etc. (I don't do direct so there's probably more lurking around) so I'd suggest a market value is best to go for anyway.

Hope this helps

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