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VAT for Property development company

VAT on land purchase and implications on residential property development company

Hi. I am planning to buy land (via my newly formed Property development limited company) with planning approval for 3 houses. The agent has advised that I will need to pay VAT (£65k)on the purchase.  

First question is - Is the stamp duty calculated on purchase price inclusive of VAT?

Then My company will contract out the design and construction of these houses to one of our contractor. And once construction is completed, my company will sell these houses  

I need advise on the VAT implications and the best way to recover the VAT. 

Many thanks

 

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By DJKL
07th Nov 2017 17:56

1. SDLT on the gross (price plus vat)

2. Register for vat -housebuilder, reclaim all input vat.

3. Consider monthly vat returns as will be a net receiver

4. Register for CIS as a contractor

5. Appoint accountant

6. Make sure you have decent solicitor

7. Ensure all funding sourced

8. Ensure you have all necessary access rights, over sail agreements etc., etc, etc- check and double check, also ensure architects drawings are within the property you own and you build in correct position-we just had neighbour's building on jointly owned property and could have been very nasty- in effect if we had not agreed to sell them area they could have sold none of their flats.

9. Check all ground surveys , planning docs,warrants, traffic impacts, everything. Also remember to ensure you have right to use existing plans etc and right , legally, to rely on the work done by professional team for previous owner re these-easily missed and not so hot if find engineers drainage levels are nonsense etc, if no passed through rights he has no liability to you.

10. Ensure your architect is not a prima donna, "Architect,- someone who wins prizes using their client's money"

Oops, you are number 10, okay, you know what you are doing re the paper bits.

The only other rule with property development is obey the golden rule,

"never run out of money",

and observe the maxim,

"whatever time frames included in the project plan something, somewhere, along the route will screw it up,"

So, if funding is from a bank make sure you add a good number of months extra to the facility term.

Enjoy-it is very good fun as long as you get to the end.

Thanks (1)
By Ruddles
to DJKL
07th Nov 2017 18:06

I agree with the above, except for the order - point 5 appears to be far too low down the pecking order.

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By DJKL
to Ruddles
07th Nov 2017 21:01

Stream of consciousness rather than a structured guide.

If I had been really sarky I would have put at No 1 the commandment,

"Do not allow the architect to alter the drawings for aesthetic purpose once construction has begun"

- the number one way to run over budget, a tweak here and a tweak there , change the spec of this, amend that- we once built a very nice block of 27 flats (conversion), my first major project when I started here in the late 1990s, initial budget, £1m, finished cost £1.67m- I would ban architects from construction sites as I spent a large part of the first fifteen months sidling into the directors' office to explain this week's cost overrun (and one of the directors is an architect)

Don't get me wrong, they can be charming individuals, but yet to find one that actually controls costs.

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avatar
to DJKL
08th Nov 2017 06:04

Thanks a lot DJKL.

Would I be able to also recover the VAT that I will pay on the land purchase price? Or is it only for VAT on construction labour and materials?

Also, thanks for suggesting monthly VAT returns. Does that mean the VAT will be refunded to me every month?

Many thanks

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By DJKL
to Shuffle89
08th Nov 2017 10:26

Vat on the land purchase should be fine, your future intention is to sell new build properties (they are new build and not merely conversions are they not?) which is a zero rated supply ,thus you ought not to have any input vat restriction, as a vat registered business, re vat recovery.

Remember you do not need , nor should you, Opt to Tax the property, also remember to get a vat invoice from seller and insist on a copy of the seller's option to tax and certificate of vat registration, re this your solicitor ought to do this as a matter of course.

As you will be reclaiming substantial sum HMRC will want proof re first repayment . When you register for vat be sure to tell HMRC correct activity, if the company was registered under another activity expect delays re initial repayment (so advising them of change will likely be useful) though given quantum you likely will have a delay anyway, so be cautious re your cashflows re when initial vat repayment will be received, add an extra month.

I have in past dealt with similar by e mailing docs to HMRC when return queried rather than require a visit, so if return queried try to see if this route open to you, it ought to speed things up a bit.

Warning, if say you changed your mind and decided to let the completed dwellings rather than sell there would be vat issues to be addressed, so I would very strongly suggest you talk through everything with an accountant.

A monthly vat return should involve a monthly repayment, you need to apply to do and you generally need to be a business expecting repayments, new build house sales fits the bill.

Final point, you have currently decided on the the entity to do the development, has this been decided with professional input, considerations are:

1. Tax re profit extraction and where it is to go and why including future estate planning re family and whether a one off development or the first of a habit.

2. Personal liability if things go wrong

3.Ability to get necessary finance via chosen entity (especially if new off the shelf company)

Setting up for a property project without taking due consideration of these aspects is actually a worse sin than giving an architect a free hand during the development.

Have you done many projects as the client or has your role to date been mainly acting for others?

A good accountant is really useful at outset, can set you up in correct entity, set up sound record keeping to deal with vat and CIS, and may even be useful with other professional contacts as you will also want a solicitor who is sound (and familiar) re various styles of construction contract. (Presume given your title you have rest of professional team in place/in mind)

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avatar
08th Nov 2017 10:58

VAT for Property development company. For future refrence

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