Just to confirm my understanding and your help would be greatly appreciated:
A client (an LLP) has just received planning permission to convert its commercial building (not opted) to residential (3 flats) and add a floor (2 flats), the ground floor remains commercial.
The client is keen to recover VAT (and he understands most of the conversion is at a reduced rate) but his intention is to let the properties, which of course, is an exempt supply, with no right to claim input VAT.
My thoughts are that LLP needs to incorporate upon completion of construction, and then let the properties, as this creates a zero-rated sale, enabling the LLP to claim the input VAT.
What I am not clear is:
- Does the LLP need to register for VAT upon incorporation as the value of the properties is >£85k; but the LLP is soon replaced by a Ltd which doesn’t make sense. OR how best can the LLP claim the input VAT?
- Is there any chance of TOGC here? My thoughts are no unless leases are agreed upon before the incorporation.
Any possible solutions are welcome.
Replies (14)
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If the LLP intends to make a zero rated supply, it can register for vat at an earlier stage, to recover the input tax. This needs a VAT 5L carefully completed too, so that HMRC will accept the registration application.
It is essential that you appoint a VAT specialist urgently to put everything in place to ensure VAT efficiency.
I don’t think a TOGC will help.
Probably.
I have just advised on such a situation, where the property is question was ‘supplied’ from one legal entity to another.
The terms of the incorporation must take into account the property.
I am sure you won’t rely entirely on this thread, valuable though it is! Proper paid for professional advice is essential.
VAT on property development is fraught with complexity. FWIW, I’d be looking to outsource.
I wouldn’t know for sure but seems odd that “LLP needs to incorporate upon completion of construction, and then let the properties, as this creates a zero-rated sale”.
I’ll follow the responses, from those who know their stuff, with interest.
Why is there no IT & NIC on the sale of the property stock from LLP to Ltd (it's unlikely to be a FA investment under UK GAAP qualifying for s162 TCGA incorporation relief)?
As for VAT, yes, you need a VAT specialist as it's far from simple. SDLT too.
Is a sale the way to go, can the conversions not be reduced rate, could this be just as effective re cost given sales from LLP surely will have tax implications?
Has client modelled the input vat involved in creating the flats?
My 2 pence:
1. You have to consider cgt of the capital gains on disposal to Ltd Vs the benefit of claiming mostly 5% VAT.
2. When a partnership incorporates this would qualify as TOGC if the property is leased before incorporation. However if you lease before incorporation, then I guess there will be some clawback on the input VAT as the leases are exempt services.
My 2 pence:
1. You have to consider cgt of the capital gains on disposal to Ltd Vs the benefit of claiming mostly 5% VAT.
2. When a partnership incorporates this would qualify as TOGC if the property is leased before incorporation. However if you lease before incorporation, then I guess there will be some clawback on the input VAT as the leases are exempt services.
My 2 pence:
1. You have to consider cgt of the capital gains on disposal to Ltd Vs the benefit of claiming mostly 5% VAT.
2. When a partnership incorporates this would qualify as TOGC if the property is leased before incorporation. However if you lease before incorporation, then I guess there will be some clawback on the input VAT as the leases are exempt services.
My 2 pence:
1. You have to consider cgt of the capital gains on disposal to Ltd Vs the benefit of claiming mostly 5% VAT.
2. When a partnership incorporates this would qualify as TOGC if the property is leased before incorporation. However if you lease before incorporation, then I guess there will be some clawback on the input VAT as the leases are exempt services.
My 2 pence:
1. You have to consider cgt of the capital gains on disposal to Ltd Vs the benefit of claiming mostly 5% VAT.
2. When a partnership incorporates this would qualify as TOGC if the property is leased before incorporation. However if you lease before incorporation, then I guess there will be some clawback on the input VAT as the leases are exempt services.
My 2 pence:
1. You have to consider cgt of the capital gains on disposal to Ltd Vs the benefit of claiming mostly 5% VAT.
2. When a partnership incorporates this would qualify as TOGC if the property is leased before incorporation. However if you lease before incorporation, then I guess there will be some clawback on the input VAT as the leases are exempt services.