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VAT property development

VAT property development

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Inherited a client....Ltd co. VAT registered and has been doing up some listed properties originally with a view to sale. Been claiming input VAT back on the basis that selling on would be a zero rated transaction. More recently has decided to hang onto them and has started to rent out. I realise the whole area is a potential minefield but what are my issues? Don't feel the need two write chapter and verse if the answer is too complicated. I have never had this crop up before. Done some research online but would like an opinion or two. Thanks a lot.

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09th May 2019 17:53

Without further facts, I would be inclined to say why did they reclaim VAT in the first place? On what basis were they advised the sale would be zero-rated?

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09th May 2019 18:23

As above!
Transactions in not-new properties are rarely zero rated.
Urgently talk to a specialist.

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By DJKL
09th May 2019 18:48

What were the listed properties before company started the work, commercial or residential?

If the latter how long, if any time, had they been unused?

See section 5

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-...

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09th May 2019 20:18

Sorry I should say it was commercial to residential conversion.

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By jcace
10th May 2019 10:35

Read part 5 of VAT Notice 708 to see whether that's applicable.
Then you might need to consider the effect of a change of intention. Have a look at HMRC's VAT Partial Exemption Guidance at PE61000

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to jcace
10th May 2019 10:47

jcace wrote:

Then you might need to consider the effect of a change of intention.

I think that is key - exactly what is the intention? To "hang on to" the properties for how long?

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10th May 2019 11:17

If a sale would have indeed been ZR, then why not set up another Ltd co to sell them to, with newco being the company that rents them out.

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to sculptureofman
10th May 2019 12:04

Maybe because his client doesn't enjoy paying SDLT?

If it is a conversion of non-residential to residential, only 5% VAT will be at stake.

To be honest, I don't know why we are bothering... with the lack of information provided by the OP and some fairly fundamental omissions, all we can do is speculate.

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to Adam12345
10th May 2019 12:20

The grant of a major interest to a (for example) subsidiary is standard planning (accepeted by HMRC) in this sort of situation. And if vendor and purchaser are members of the same group, there is no SDLT.

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