Register for VAT before building investment property

[skitter0]

Hello all,

I'm newly registered member of the forum but have being reading it for some time now, some excellent info from some very smart people.

So I thought about posting a question or 2 before going taking to an accountant & any help is appreciated.

Myself & a friend are in a postion to invest & we are thinking about buying a plot of land to build 3-4 houses. But we are unsure of which way to go with regards to tax & should we register for VAT?

I believe I have 2 options, but for both options we are using the following as rough guides,
land cost 100k,
cost of building per house 200k. (150k goods & 50K services)
Sale of house 350k.
CGT = 20%,
13.5% goods VAT,
services VAT 21%

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Option 1. Don't register for VAT & when we sell house, we are only liable for profits (CGT - capital gains tax) of sale.

Land 100k & 3xhouse 600k = 700k cost
3xhouse sale = 1050k
Liable for 350k CGT = 70k
Total profit 280k
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Option 2. Register for VAT & when we sell house, the VAT could be used to pay the CGT.

Land 100k & 3xhouse 600k = 700k cost
goods VAT cost to build (13.5% 150k/per house) = 60.75k claim back
services VAT cost to build (services 21% 50k/per house = 31.5k claim back
3xhouse sale = 1050k
Liable for 350k CGT = 70k
CGT - VAT = -22.25k
Unsure if VAT is needed on sale of property & on what amount
VAT due on sale (1050k) = 141.75k
Total profit = 350k - 141.75k & 22.25k = 230.5k

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Unsure on the following;
if I have to pay VAT on sale of house or on how much.
Do you pay VAT before or after CGT
Option 2 what do I pay CGT on.

I'm sure I have things wrong above but if anyone can point me in the right direction it would be appreciated.

Thanks

 

[Trustmeh]

You've missed the boat on the ability to claim back VAT. Have a look through the forum and you will find that next month a bill will be passed removing the VAT loophole.

It was for investors buying property from builders...not sure if it could have worked if you were building the property yourself. Either way - its gone as far as i know (bar possible commercial properties).

 

[ubiquitous]

I believe I have 2 options

Option 1. Don't register for VAT & when we sell house, we are only liable for profits (CGT - capital gains tax) of sale.

- Not an option

Option 2. Register for VAT & when we sell house, the VAT could be used to pay the CGT.

This doesn't make sense. For a start, you will more than likely be liable to income tax on trading profits than CGT for a venture such as this. Its impossible to offset a vat liability against CGT or income tax. They are separate taxes.

Unsure if VAT is needed on sale of property & on what amount

if I have to pay VAT on sale of house or on how much.

You will be liable to VAT at 13.5% on entire proceeds of sale including site value

Do you pay VAT before or after CGT.

See above

Option 2 what do I pay CGT on..

See above

I'm sure I have things wrong above but if anyone can point me in the right direction it would be appreciated.

The only direction I can point you is towards a good accountant or tax advisor. I'm afraid that your knowledge of the tax issues involved is so incomplete that you otherwise run the risk of making major errors if you depend on AAM for guidance.