Do Buy-to-Let investors become VAT registered?

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_Paul_

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The VAT registration thresholds for small businesses from the 1st of March 2007 will be €35,000 in the case of services, and €70,000 in the case of goods.

If someone purchases a residential investment property, by way of an investor mortgage, and rents the property out does the investor need to become VAT registered as a trader in goods or services has to if their turnover is over the relevant threshold?
 
Short term letting (lease < 10yrs) of property is exempt from VAT.
You may however waive this exemption and charge VAT at 21% on the rentals. This will also allow you to recover any VAT incurred i.e the VAT paid if any on the purchase of the house. This is not a simple process you may need further advise on this for someone suitable qualified and experienced

If the lease out is >10 years then the reg threshold is nil and the VAT may be payable on the capitalised Value of the lease.
 
Thanks

So does this mean in either the case of a lease of <10yrs or >10yrs, it is not compulsary for the investor to become VAT registered and therefore charge VAT on top of the rent?

In the way a trader of goods or services may have to become VAT registered and charge VAT on top of the price of their goods/services.
 
If the lease is less than 10 years i.e. a simple lease on residential property then there is no obligation to register for and charge VAT.
So a normal buy to let investor is not caught up in VAT registration, they merely incur the cost of VAT on there purchases and of course receive a CGT deduction on the eventual resale.

A lease of > 10 years is a total different monster and is a VATable supply and will require registration etc...it is deemed to be a supply of goods, VAT is charged up front on the capitalised value of the lease and not on the rental income. There is also a economic value test that must be passed or the lease is deemed to be an exempt supply. This is anti-avoidance to ensure a long term lease is caught with VAT and if not the lessor has no entitlement to an input credit.

VAT on property is extremely complex and totally different to the usual rules of a trader of goods or services with reg threshold etc.....
 
Thanks bazermc, apologies I think I mis-read your first reply.

If I did purchase an investment property then of course I would obtain full professional advice before doing so. It's good to get an idea of some of the basics beforehand...

So you mean that even if someone took out a 25 year mortgage on an investment residential property and kept the property for a full 25 years before selling, and they were renting this house out on 6-month, 1-year or 2-year leases as most houses would be let out on (up to a maximum of 10 years) then the investor would not be required to become VAT registered.

Therefore they would not charge VAT to the tenants on top of the rent and likewise the investor could not recover any VAT either.
 
Hi Paul

Yes, you seem to have got the hang of it.
For VAT purposes the first question is how long is the lease - if short term < 10 years then the supply is exempt and no VAT obligations exist, however, you have an option to waive this exemption, in which case you have a VAT obligation.
 
Thanks again.

Out of curiosity if an investor was renting out a house to a tenant on a lease of 1-year but this 1-year lease was renewed every year with the same tenant and the same tenant remained in the house for 11-years, I suppose the investor would still not be required to become VAT registered as each lease was for 1-year; even though the same tenant rented the house for 11-years?
 
Yes paul

Yes exactly, technically you have a new lease each year, so it would not nor never become a long lease.
However if the lease was for say 2 years but there was an option, in favour of the tenant, to extend to a 15 year lease, then it would become a long lease and subject to VAT
 
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