VAT registration for jointly owned property

Should joint property owners register as a VAT partnership or individually

Didn't find your answer?

A commercial property is owned jointly, held in an individuals name and their SIPP. The property is opted to tax. 

The property is to be leased to the owner, with the lease in their name, as a sole trader. 

Rent payable will be in the region of £22,000 per annum plus VAT. 

The sole trader is registered for VAT. 

Should the individual and the SIPP register a VAT partnership or as individuals?

HMRC seems to suggest that as the property is held in joint ownership and they've agreed to let the land together a VAT partnership may be appropriate.

However, given taxable supplies are below the VAT registration threshold and the SIPP would be the only taxable entity who will receive income from the taxable supplies is registering for VAT as individuals more appropriate? 

 

Replies (14)

Please login or register to join the discussion.

RLI
By lionofludesch
13th Jan 2024 09:46

Can each party let their half independently? Probably not.

So I'd agree with HMRC. There's one supply.

Thanks (0)
By Ruddles
13th Jan 2024 10:09

What do you mean by the property will be leased to the owner?

What do you mean by the SIPP being the only taxable entity receiving income?

In whose name was the option to tax made?

Thanks (1)
Replying to Ruddles:
avatar
By FactChecker
13th Jan 2024 10:29

+ How did property come to be part-owned by the SIPP?

This 'sounds' like a convoluted attempt to shelter £22k pa of 'profit' by sole trader from tax ... in which case, rather than expecting those without the full facts to hazard guesses, OP would be strongly advised to ask whoever put the deal together in the first place.
[If the 'deal' was done *without* professional advice, then there's a lesson to be learned right there - including getting advice *before* doing the deal.]

Thanks (2)
Replying to FactChecker:
avatar
By Philhome
13th Jan 2024 10:48

The property is held in joint ownership, as the SIPP had insufficient funds to purchase it entirely. There is no attempt to avoid tax by the sole trader. The complication arises as the sole trader is both tenant and owner and therefore there is no clear distinction on how rent should be paid / VAT accounted for for their proportion of the property.

Thanks (0)
Replying to Philhome:
avatar
By FactChecker
13th Jan 2024 11:01

Since "there is no attempt to avoid tax by the sole trader", why is the SIPP charging rent (on the whole property) to the person who already owns (part of) the property?
[I've no idea as to the 'share ratio' of property as this hasn't been disclosed.]
Of course you could simply choose for the SIPP *not* to charge rent ...

Your 2nd sentence neatly sums up why this sounds like a 'scheme' that should have been thought through *before* embarking on it (if it then even went ahead).

Thanks (1)
Replying to FactChecker:
avatar
By Philhome
13th Jan 2024 11:13

Sorry if not clear, the SIPP is only charging rent for the percentage of the property they own.

Thanks (0)
Replying to Ruddles:
avatar
By Philhome
13th Jan 2024 10:44

The sole trader and SIPP are the joint owners of the property so option to tax is in their names. The sole trader will be the tenant / leasee whilst simultaneously being part owner. As such would it be solely the SIPP receiving rental income? The sole trader as leasee would otherwise be paying rent to themselves for the portion of property they own, which is surely negated as they are the same person.

Thanks (0)
Replying to Philhome:
By Ruddles
13th Jan 2024 11:19

Is £22k the market rent of the entire property, or the SIPP’s share only of a market rent to a 3rd party?

EDIT - sorry, didn’t see post above

Thanks (0)
Replying to Ruddles:
avatar
By FactChecker
13th Jan 2024 11:54

".. or the SIPP’s share only of a market rent to a 3rd party" - but where 3rd-party is likely the only beneficiary of the SIPP as well as being co-owner of property.

Getting relevant info here is like pulling teeth.
Several questions have still not been answered - including:

* In whose name was the option to tax made?
* How did property come to be part-owned by the SIPP (as in from whom did the seller actually receive funds - assuming seller wasn't also the new part-owner)?
* What is the 'share ratio' of property (%age individual and %age SIPP)?
* Is there any mortgage on the property (and if so in whose name)?
* What is market rent of the property (quantified by whom)?

Thanks (2)
Replying to FactChecker:
avatar
By Tax Dragon
13th Jan 2024 13:22

@OP to clarify, FactChecker is not asking these questions expecting answers in here - this isn't an advisory forum.

I suspect the point is that there are significant (tax and regulatory) factors outside your question which the scenario you say has arisen brings with it - and you as advisor/agent/accountant may need to be acquainted with the answers to the questions.

Thanks (1)
Replying to Philhome:
RLI
By lionofludesch
13th Jan 2024 12:02

Philhome wrote:

The sole trader and SIPP are the joint owners of the property so option to tax is in their names. The sole trader will be the tenant / leasee whilst simultaneously being part owner. As such would it be solely the SIPP receiving rental income? The sole trader as leasee would otherwise be paying rent to themselves for the portion of property they own, which is surely negated as they are the same person.

Whose idea was this?

Thanks (0)
Replying to lionofludesch:
avatar
By rmillaree
13th Jan 2024 13:10

this situation probably exists out of necessity - eg if at present the size of the sipp pot is not enough to buy then whole property buying a % share now and remainder later on might be the best route to get to the end goal and get some tax efficiency in the meantime . That does in the interim create the somewhat confusing position that a part owner is renting to themselves effectively speaking - i have nothing useful to add in that regard unfortunately as to how that should be treated for either vat of tax albeit for vat as different legal entities its probably fine to charge rent from joint ownership to sole trader.

With regard to vat registration for property it would be in the name of the legal owners - thats clearly a different vat entity from sole trader.

Thanks (1)
avatar
By rmillaree
13th Jan 2024 11:12

"HMRC seems to suggest that as the property is held in joint ownership and they've agreed to let the land together a VAT partnership may be appropriate."

HMRC will only be supplying info they hold - if any changes inownership have been made and not notified to hmrc they will likely have wrong info on file. This being the case i would have thought is very unlikely this statement is correct - its more likely they are just confriming info they hold on file. Surely you know the facts here as to who owns what ? - if you dont you need to find that out and it wont come from hmrc.

Thanks (0)
VAT
By Jason Croke
13th Jan 2024 19:30

Joint ownership of a property, HMRC will see this as an informal partnership for VAT purposes.

OP has stated "The sole trader and SIPP are the joint owners of the property so option to tax is in their names"

That makes no sense, it suggests both the SIPP and sole trader have both individually opted to tax the property yet OP is asking if SIPP should register for VAT (sole trader already VAT registered)...but you can only opt to tax if you are VAT registered so it looks like property is only opted by the sole trader, not by SIPP.

This appears way to difficult for a forum and would certainly veer towards 'advice' which this forum cannot supply.

Thanks (3)