A client opted to tax a commercial property for VAT a few years back. VAT was reclaimed on some major works on it.
He is now wishing to convert the whole property into flats for residential use, to which VAT does not apply. What happens to the earlier option to tax and will he need to repay any VAT?
Replies (6)
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disapplied
..think the option is disapplied so that normally the VAT would be repaid...however as long as there is an onward zero rated sale of the flats recovery would be preserved ...if they were to rent them out or if the sales were exempt then you have a problem....
The option would not be disapplied
What you have is a change of use - from, I assume, taxable supplies in the form of commercial rents on an opted property to exempt rents of residential property. The treatment will therefore depend on the level of expenditure on the purchase of the property and subsequent works (the previous works, not the proposed conversion). If the level of such expenditure brings the property into the Capital Goods Scheme, then there will be a clawback of input VAT over the remaining CGS intervals. If not, you have little to worry about.
Hi Johnday
i would suggest that several of the readers could say definitively what the position would be but would refrain from doing so with engagemnent letetrs in place.
I would suggest you ask a VAT specialist to give you a written reply on the matter as it will ensure your PI is safe and for the sake of probably not a lot of money you and your client will have peace of mind.
by the way I am not a VAT specialist and not touting for business!!
Definitive advice
As the previous respondent says, this forum is for discussion of opinion and general advice. Even if there were sufficient information I would be wary about offering 'concrete' advice to a non-client.
But the fact is that there is insufficient information - we don't have the purchase date of the property, we don't know how much it cost etc etc. You should engage with a VAT consultant, provide all the relevant facts, and take it from there.