VAT back on investment property to let

G

goose

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Hi All,

an interesting article appears in the public Sector Time july 2006 on page 24. it indicates you can claim vat back on new property if you re to invest same.

the onyl qualifying criteria is:
property must be new.
register for the Scheme (what is this scheme) before the sale is closed
property must be in rep. of ireland.

How can you claim VAT back if your not VAT registered.
and what is the scheme it talks about.

comments welcomed.
by the way it seems to be a commerical promotion and the web site is www.loweq.com
 
website very slick!
get a feeling all too good to be true.
got vat refund on tax based property this year on sale and leaseback scheme run by liberty asset management which involved having to register and deregister for vat.
would need tax specialist advise on this.
 
Hi, as far as i Know anyone who intends to be a landlord can do this on a new property. The VAt is reclaimed initially but be aware that you must then charge VAT on your rent. This is essentially like a free long term loan as you get the money up front and "repay" in dribs and drabs over the coming years.
Another point to note is that you must charge VAT on all rents - therefore if you had say a residential house also which you had been renting out you would then have to charge VAT on that from when you registered.
 
You should also realise that if you decide to sell the property you must de-register or else you will have to pay vat on the sale.

This topic was discussed extensively on another thread. Maybe a search would be helpful.
 
liteweight said:
You should also realise that if you decide to sell the property you must de-register or else you will have to pay vat on the sale.
Click to expand...

Deregistering will not negate your obligation to charge VAT on a subsequent sale once you have claimed back the VAT on the purchase you keep the property within the VAT net.....this seems to be a common misconception that people have
 
does landlord have to register other properties in portfolio for vat as well and/or charge vat on rents on other properties?
 
markowitzman said:
does landlord have to register other properties in portfolio for vat as well and/or charge vat on rents on other properties?
Click to expand...

Other threads seem to give a pretty conclusive yes. It's you who is registered for VAT, not the property, so you must charge it on all invoices you create.
 
bazermc said:
Deregistering will not negate your obligation to charge VAT on a subsequent sale once you have claimed back the VAT on the purchase you keep the property within the VAT net.....this seems to be a common misconception that people have
Click to expand...

Are you sure about this? It goes against all the advice I have been given by my tax consultant. Other threads on this subject would also suggest that you are wrong.

Logically, I don't understand how someone who is no longer registered for vat can be charged vat in the future.
 
markowitzman said:
does landlord have to register other properties in portfolio for vat as well and/or charge vat on rents on other properties?
Click to expand...

Once you register for vat then all properties owned by you should have vat in the rental charge. Effectively it is an interest free loan. Vat is included in you rental and you pay bi-monthly to VAT office.
 
I'm doing this at present. You must register for vat within the same two month period in which you close on the purchase of the property. The main benefit is the free long term loan. You must repay all the vat back (by way of including vat on rent) before de-registering. I believe this would also apply to rents you might be receiving on other properties.

I bought a property for €300k, reclaimed vat of approx €35k and repay approx €380 in vat on rents every two months.
 
liteweight said:
Logically, I don't understand how someone who is no longer registered for vat can be charged vat in the future.
Click to expand...

because the supply is taxable and the registration threshold for property transactions is nil
 
One point to note..... at least as I understand it. If you recover vat on the purchase on a property, then when you sell it you pay CGT on the purchase price net of vat - this will result in a higher cgt charge than if you never reclaimed the vat - so it may be a case of comparing the cost of this additional cgt against the benefit of the interest free loan (assuming prices continue to increase), and the hassle of registering for vat and doing bi-monthly vat returns.
 
bazermc said:
because the supply is taxable and the registration threshold for property transactions is nil
Click to expand...

Can you explain this further..afraid I don't understand.

San Martino said:
One point to note..... at least as I understand it. If you recover vat on the purchase on a property, then when you sell it you pay CGT on the purchase price net of vat - this will result in a higher cgt charge than if you never reclaimed the vat - so it may be a case of comparing the cost of this additional cgt against the benefit of the interest free loan (assuming prices continue to increase), and the hassle of registering for vat and doing bi-monthly vat returns.
Click to expand...

Is this true even if you've repaid the vat and de-registered before you sell the property.
 
Liteweight,

I believe it is true because capital gains tax is based on the cost of the property and if you recovered the vat at the time of purchase, your base cost is the net of vat cost.

However, I could be wrong......
 
San Martino said:
Liteweight,

I believe it is true because capital gains tax is based on the cost of the property and if you recovered the vat at the time of purchase, your base cost is the net of vat cost.

However, I could be wrong......
Click to expand...

That makes sense to me alright. Must try to work it out. If it is the case then it'd be better not to de-register for as long as possible (i.e. keep interest free loan going). Food for thought.
 
Hi all,

A point to note in relation to the VAT implications of a property transaction, the VAT treatment for a lease longer than 10 years is different to a short-term lease.

In a situation where you purchase a property upon which you are charged VAT and intend to let under a lease of less then 10 years, then you must waive your VAT exemption in respect of all short-term lettings and not just that of the property being purchased. You then must account for VAT on all the rents received.

With regard to long-leases, the VAT is accounted for upfront and unless the tenant is themselves VAT registered, this can represent a significant upfront unrecoverable VAT cost. However, as the VAT interest in the property passes to the tenant once a long-lease is created, in this situation the landlord can de-register once the lease is created.

VAT on property is a complex area of taxation and professional advice should be obtained.


And just to declare my interest in this area, one of my area's of specialism is VAT on property transactions( tax consultant)
 
Hi Katiealice,

I did use a tax consultant. Understood implications re exemption waiver etc. Property is on short term basis...can I de-register, pay the outstanding amount of vat on my balance sheet and then sell the property? Tax consultant told us that this was the case and someone else on AAM said they had done it. Is this the case?

Thanks
 
Hmmm,

I've had a look at the site and it does look good but they don't point out the impact registering for VAT will have on any existing short-term lets( residental or commercial). As registering for VAT will being all short-term lets into the VAT net.

However, you can get around this problem with a bit of planning.
 
Damn lost a long post!!!

Liteweight,


Without going into the in's and out's of VAT legislation( i'd bore us both to tears), if you choose to de-register for VAT you will basically have to repay all the VAT claimed on the purchase of the property. You could then sell the property without charging VAT on the sale.

If you did go down this road, the property would pass out of the VAT net and unless you redeveloped the property for VAT purposes, the property will not be vatable.

However, i would have to ask why you would be considering doing this, as the VAT reclaimed is effectively an interest free loan from Revenue.

Also, what do you mean by "Outstanding VAT on the balance Sheet"?

without knowing the advice received from your advisor, i think that he has basically given the same advice, but you do seem unclear/uncertain about this advice, go back and get them to clarify the position.

I know from experience, that trying to explain the VAT implications on property transactions does tend to led to the glazing over of the eyes of clients!!;)
 
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