VAT On Sale Of Residential Property To Director

Can The Sale Of A Residential Property To The Director Be Zero Rated?Are There Any Other Tax Issues?

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A VAT registered Limited company (sole director/shareholder in the electrical consultancy business) is looking at purchasing an old barn with planning permission to convert to a residential property.

The Limited company will include the property on the Balance Sheet and reclaim the VAT at 20% on any materials it purchases, solicitors fees, etc and 5% on the builders charges. I then presume the company can then sell the property to the director (as soon as the building work is complete but before he moves in) for market vaue and zero rate the sale? The company will therefore reclaim some of the VAT relating to the purchase/build but will not pay VAT on the sale (and there will be no further VAT issues for the director)?

Regarding the corporation tax issues related to this I presume the company can claim AIA on integral features and will then pay chargeable gains tax on the sales proceeds (less costs and improvements) when the property is sold to the director (at market value)?

I presume there are no other tax, BIK, etc issues?

Thanks in advance for any assistance.

Replies (7)

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Portia profile image
By Portia Nina Levin
17th Nov 2017 14:01

Methinks thou does presume too much.

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paddle steamer
By DJKL
17th Nov 2017 14:10

No CG I suspect, surely CT on profit as a trade.

(Edit-CGT should be chargeable gain)

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Replying to DJKL:
Portia profile image
By Portia Nina Levin
17th Nov 2017 14:17

Among other presumptions.

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chips_at_mattersey
By Les Howard
17th Nov 2017 14:43

Is the purchase and sale in the course of the company's business? (Basic question in relation to VAT.)
If so, then the sale looks to be zero rated, but planning permission should be checked carefully to ensure it satisfies the definition of 'dwelling' in VAT legislation. (Barn conversions cause a lot of problems!)

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Replying to leshoward:
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By Hull Accountant
17th Nov 2017 14:50

Les, thanks for the reply.
The company's business is electrical consultancy. The property is not related in any way to the 'normal' trade of the company if that's what you mean?

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By pembo
17th Nov 2017 15:03

As this is a one man band company why do it this way ? It would be classified as a trade by HMRC so no CAs and as the sale would have to be at MV you would incur CT on the profit from sale (+ SDLT on uplift). Also CIS implications this way.
Why doesn't he do it as a self build residential conversion , register for VAT and claim it back that way ? Also lower SDLT, no CT on profit from sale and as (presumably again Portia) his PPR any uplift would get PPR relief. If not to be his permanent PPR then perhaps higher CGT on sale so that may be a minor consideration.

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Replying to pembo:
Portia profile image
By Portia Nina Levin
17th Nov 2017 15:05

Because then he doesn't get VAT relief on the architect's, project manager's and solicitor's fees. I'm sure that's worth paying 19% CT on the rofit, plus dividend taxes to get his money back out again.

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