VAT on property lettings

[Blue Thunder]

My father built a house about 7/8 years ago with the intention to sell when complete. He claimed back Vat on the costs associated with building the house and due to the down turn in propert prices at the time he ended up holding onto the property and renting it. He has since charged Vat on the rental income but has now just full paid back in full the total Vat claimed when building the house initially.

Is it true that he does not have to continue to charge the Vat once the revenue have been paid back all the Vat relating to the initial house build. Also he wants to carry out some rennovation work on the propertty ie put in a new floor, bathroom. Is he able to reclaim Vat on these expenses and if so does he susequently have to charge Vat on lettings as though this was part of the initial house build costs?

Any help is appreciated.

 

[Joe_90]

What does your fathers accountant say?

VAT on property is one of the more complex areas.

First it is important to establish when the property was completed? If after 1 July 2008 then the new VAT on property rules apply. You father developed the property with the intention of making a taxable supply ie sale.

The letting of such a property is an exempt supply so your father should have paid back 1/20 of the VAT he recovered for each year that it was let.

Property developed for sale by a developer is always taxable on sale as the usual VAT rules don't apply to this type of property.

If completed before 1 July 2008 a whole other set of rules apply.

Seek professional advice from someone who knows your fathers entire situation.

 

[Blue Thunder]

What does your fathers accountant say?

VAT on property is one of the more complex areas.

First it is important to establish when the property was completed? If after 1 July 2008 then the new VAT on property rules apply. You father developed the property with the intention of making a taxable supply ie sale.

The letting of such a property is an exempt supply so your father should have paid back 1/20 of the VAT he recovered for each year that it was let.

Property developed for sale by a developer is always taxable on sale as the usual VAT rules don't apply to this type of property.

If completed before 1 July 2008 a whole other set of rules apply.

Seek professional advice from someone who knows your fathers entire situation.

Thanks for the reply, he will be seeking professional advice but I just want to have a basic idea as to whether he can claim back Vat on refurbishment work on the property? The property was completed in March 2007 and was rented out a few months after that date. The Vat reclaimed on the build has now been repaid in full and he has stopped paying Vat on the rental income. Is he entitled to cease charging Vat on the rental income?

 

[Joe_90]

"A basic idea" would be great.

Without the full background of the advice that was given at the time, I have to speculate.

If a client came into me and said that they had a house that they had developed to sell but that they could not sell it and therefore were going to rent it I would say that in June 2007 you have a fairly major problem because the letting of residential property is an exempt supply and you can't waive the exemption so you have to pay back all the VAT you recovered immediately!!!!

The property is then exempt from VAT. Then they changed the rules to say that while residential lettings were still exempt the sale of "stock in trade" by builders is always taxable from 1 July 2008 but as your fathers property was completed in 2007 this rule does not apply to him.

I would think that if he has cancelled his waiver ie by not charging VAT on the rent then he can't recover VAT on the inputs.

Be careful that the refurbishment does not bring the property back into the VAT net!!!