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Does Your Property Blueprint Consider Saving Tax?
Does Your Property Blueprint Consider Saving Tax?
By Marie walshe In Property Posted May 15, 2018 0 Comments

What is your goal: The company will purchase run down properties, renovate them and then sell them on. Property transactions are a minefield what with DI, CG, VAT, IHT, Stamp Duty and solicitor’s fees all coming into it.

Have you considered if you are looking at residential or commercial or a mixture? VAT is not chargeable on residential property

Run-down commercial property is generally over 3 years old, so by default is exempt from VAT.  Are you planning to waive the exemption, so it become standard rated? Then you can recover VAT on the renovation costs, and obviously you must charge VAT on the sale. Watch out if the purchaser is a housing association as they can force the election to be set aside and you’ll have to refund all the VAT you’ve reclaimed. Were you aware of this? No, we can help with this.

If you will be buying houses, renovating and selling, the sale can either be exempt from VAT or zero-rated, so this will impact on the recoverability of input tax.

If the property has been empty for 10 years or more, then the first sale following the renovation, by the “developer” will be zero-rated, allowing VAT recovery on costs of renovation, legal costs etc.

If the property has not been empty for 10 years the sale will be exempt, so no input tax recovery. Zero rating and exempt are not the same.

Have you heard of the Two-year rule? No, you’re not the only property investor who has not.

Any services bought in (from contractors/sub-contractors) may be eligible for the reduced rate of VAT, if the house has been empty for 3 years, but otherwise standard rated.

There is also availability of the 5% rate for services performed in changing the number of dwellings, ie. converting house to flats. And the sale of the newly created dwelling can be zero-rated.

There are various definitions that you will have to look at regarding “dwelling. In HMRC’s viewpoint, a dwelling could be anything.

You are responsible for your own taxes, so don’t blame the taxman, However, if you need some help, make an appointment to see us by emailing mariewalshe@certax.co.uk

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