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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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!)
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.
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.