VAT/Tax implications on property development?
Discussion
A hypothetical one for our tax specialists here.
If our company were to buy and refurbish a property as a sideline to its existing business, are there any VAT/Tax implications in addition to the obvious corporation tax ones?
Would the VAT on building works be reclaimable?
Being VAT registered, would we have to pay(charge) VAT on the sale price of the property?
Thanks in advance for your help (Eric
)
If our company were to buy and refurbish a property as a sideline to its existing business, are there any VAT/Tax implications in addition to the obvious corporation tax ones?
Would the VAT on building works be reclaimable?
Being VAT registered, would we have to pay(charge) VAT on the sale price of the property?
Thanks in advance for your help (Eric
)You are entering a veritable minefield here.
VAT on property transactions is one of the most complex areas of VAT legislation.
VAT on property sales can be either:
Standard Rated
Zero Rated
Exempt
The nature of the property being worked on determines the category into which it falls for VAT purposes. So, you need to know EXACTLY what type of properties you are getting involved with.
If it turns out that the property is Exempt, you will NOT be able to reclaim any VAT on any costs associated with it - and it could have detrimental ramifications for your overall Input VAT claims under the "Partial Exemption Rules".
Get professional advice.
VAT on property transactions is one of the most complex areas of VAT legislation.
VAT on property sales can be either:
Standard Rated
Zero Rated
Exempt
The nature of the property being worked on determines the category into which it falls for VAT purposes. So, you need to know EXACTLY what type of properties you are getting involved with.
If it turns out that the property is Exempt, you will NOT be able to reclaim any VAT on any costs associated with it - and it could have detrimental ramifications for your overall Input VAT claims under the "Partial Exemption Rules".
Get professional advice.
Thank you Eric.
It was too much of a 'pie in the sky' plan to get professional advice.
I think you have probably answered my question inadvertantly.
Just to rephrase my question slightly though:
If I found a residential property which I knew would have a decent margin when refurbished, generally would it be more advantageous to do the project as individuals or via the company.
Cheers
It was too much of a 'pie in the sky' plan to get professional advice.
I think you have probably answered my question inadvertantly.
Just to rephrase my question slightly though:
If I found a residential property which I knew would have a decent margin when refurbished, generally would it be more advantageous to do the project as individuals or via the company.
Cheers
I do a bit of this. Depending on purchase price (ie stamp duty considerations) and final value, VAT probably isn't as big an issue as CGT (or income tax on the trading profit).
Also, it depnds how you refurb the property. If its a huge, single contractor job, there will clearly be VAT. If its smaller, or with many, smaller contractors there may be less VAT to worry about if the tradesmen aren't VAT reg'd.
Then there is the Urban Regeneration Scheme thing (if it still exists). I think if you revert non-resi toresi or a resi building unused for 3 years, VAT is only at 5%.
Also, it depnds how you refurb the property. If its a huge, single contractor job, there will clearly be VAT. If its smaller, or with many, smaller contractors there may be less VAT to worry about if the tradesmen aren't VAT reg'd.
Then there is the Urban Regeneration Scheme thing (if it still exists). I think if you revert non-resi toresi or a resi building unused for 3 years, VAT is only at 5%.
Eric Mc said:
It could get complicated if you tried to claim back the VAT on your costs.
Sorry to go back and forth here.
Lets say I didn't claim anything back on my costs and the company bore the costs of the refurbishment in the same way I would as an individual. Would I then be able to sell it irrlelevant of VAT in the same way as an individual.
Thanks
p.s. I will leave you alone after this!!!
Yes.
But you would need to make sure that the record of the expenditure on the house renovation project was kept absolutely separately from the main business of the company. Otherwise, partial exemption rules would be applied to the Input VAT claims of ALL your businesses combined and you could find yourself claiming back LESS Input VAT than normal.
Partial Exemption rules are also quite compliacted and would need to be researched before applying them.
Also, you might need to prepare a separate Profit and Loss account for the house project as it is a separate activity to the main trade and the profits and losses (if any) of the two activities should be clearly separate.
But you would need to make sure that the record of the expenditure on the house renovation project was kept absolutely separately from the main business of the company. Otherwise, partial exemption rules would be applied to the Input VAT claims of ALL your businesses combined and you could find yourself claiming back LESS Input VAT than normal.
Partial Exemption rules are also quite compliacted and would need to be researched before applying them.
Also, you might need to prepare a separate Profit and Loss account for the house project as it is a separate activity to the main trade and the profits and losses (if any) of the two activities should be clearly separate.
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