I've had a client approach me who is planning to set up a limited company to purchase, redevelop and sell/rent out residential properties.
My query is surrounding VAT registration - I have phoned HMRC who directed me to two VAT notices, neither of which answered my question to the point I was confident in the information I was reading!
So my question is:
As a limited company, who will purchase, renovate then either sell or rent out residential properties, is there a requirement to register for VAT?
My research so far suggests that the supply will be VAT exempt and therefore there is no requirement to register for VAT. Can someon confirm either way?
Thanks!
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Replies (5)
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Residential lettings are VAT exempt, so the client cannot register for VAT. An exception would be if he converted a commercial building to residential, and then sold it, as that is zero rated.
You should look at the reduced 5% rate for certain residential alterations and renovations, as that may offer scope for VAT savings.
It seems that some of the supplies will be exempt, and others will be taxable.
This area of taxation (direct and indirect) is a complete minefield. If you do not have the experience, I'd decline the work.
Re vat probably with most properties your outputs will be exempt re vat as you surmise, however given different nature of the activities ,buying/renovate/sell and buying/renovate/lease , I would have a little thought re business structure at the outset might be useful.
If say buying in all services/materials re the renovations as distinct individual supplies;- buying materials, buying labour, plant hire , professional fees etc, and if some of the existing residential properties have been unoccupied for some years, and renovation costs likely to be significant, splitting the activities into different entities under common control may give greater flexibility;- say possibly a construction company, a dealing company and a property investment company (latter is tricky as intention re finished refits may change).
Apart from vat there may also be later advantages re BPR on some shares, ER relief on some shares etc.
How it is structured can say be very useful re getting reduced vat rates on professional fees via design and build contracts and having the construction arm can be really useful if say start straying into conversions/increasing the number of units etc.
It does all depend on the equation of hassle to flexibility, but if a decent number of projects and a decent construction spend, especially using smaller tradesmen unfamiliar with vat rules, using an intermediate contracting entity can be quite helpful, though care does need taken you do not end up needlessly adding vat re own labour.
The catch with property is intention is a fickle beast, setting up structures at outset, to be flexible to changing circumstances, can be helpful.
Hi DJKL,
I stumbled across your response here to a query about VAT and property business and it resonates with the challenge I am trying to get my head around before I start some development projects, so was hoping you might be able to advise me?
I have two properties, both bought in a holding company LTD (buy to hold/lease/rent)
I plan to develop them in to a mixture of commercial and residential, with each ground floor being commercial and flats above for residential.
I'm struggling with what to do about VAT, and whether to VAT register the business and/or mark as option to VAT.
I have another LTD set up for buy to sell/ or maintenance etc
Although the accountants I have spoken to so far have not advised me to set it up in this way.
I was thinking to VAT register both LTDs, then I can use the Development (buy to sell) LTD to do all new build to be zero VAT, and any renovation and maintenance for the (buy to hold/rent) LTD by invoice, so I can reclaim VAT on any expenses that I incur in the process.
Is this the right way of doing it or am I over complicating things?
I'm sure this is a better structure but struggling on the format I need to set things up and get it up and running.
I am hoping you might be able to clarify.
Kind regards,
Harry
Thanks all - I've just got in touch with a CA friend who has dealt with this numerous times before who is going to advise where I can't.
It certainly is a minefield though!
