Should VAT registered business charge VAT on rent?

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I have just recently taken on a new client who has a VAT registered business.  Their plans are to build a block of flats and then rent them out.  Would VAT be chargeable on the rent as they are a VAT registered business?  Or would the VAT on the rent be zero rated because it is a new build? 

Replies (6)

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By David Ex
14th Jun 2024 16:46

If you’re not familiar with VAT and property, you might be better passing on this opportunity.

Thanks (1)
By Paul Crowley
14th Jun 2024 17:25

There is so much wrong in the question that I would worry for your client.
If you want comments then start by telling people what the trading entity is and what the existing trade is.
Will the owner want to put the building at risk from the possible insolvency of the current business?
What entity will be the developer?
How will the cost of development be separated from the other business expenses?
If you have not got a grasp of how rent interacts with VAT then you either need to get to grips with it fast or help the client to find someone who does PDQ.

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By Ruddles
14th Jun 2024 19:44

Echoing the comments of my esteemed 'colleagues', I am nevertheless prepared to answer your two questions:



Thanks (4)
By jcace
14th Jun 2024 20:54

VAT on land and property is an area with all sorts of pitfalls, so you really are best advised to seek specialist assistance.
Residential rent should always be exempt from VAT, which therefore has a big impact on what VAT can be reclaimed. But get proper advice, taking into account all the current situation and future plans for the flats, and action can be taken to maximise the possibility of a reclaim of VAT.

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By Jason Croke
14th Jun 2024 21:01

Paula, you may have taken on a new client but you don't say what your business is.

Based on what you have stated, the renting of dwellings is exempt, exempt means no VAT can be reclaimed, no VAT registration is allowed. Exempt is not the same as zero rated.

If client has registered for VAT for this development then they may not actually be eligible for VAT registration now that you know their intention.

Suggest you pass this onto someone who knows VAT in more detail as you may end up advising your client poorly and exposed to a PI claim (ie, there are ways to make this incredibly VAT efficient but requires knowledge and experience in this kind of thing plus detailed understanding of what client wants to achieve).

Thanks (2)
By jvenegas16
17th Jun 2024 01:40

VAT rates apply to taxable supplies.
Being a VAT registered business does not imply that all supplies will be taxable.

The fact that your new client is VAT registered might indicate that it makes taxable supplies.

What you need to consider is if your new client might become a partially exempt business, and you will need to be familiar with the rules: If you make both taxable and exempt supplies, you must keep a separate record of your exempt sales and details of how you’ve worked out how much VAT to reclaim.

The rent of residential properties is exempt. But the sale of a new (residential) build would be zero rated, which is not your new client's case.

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