Gaining refund of VAT on investment property

M

monkeyboy

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Hi

Gaining refund of VAT on investment property after closing:

Can anyone point me toward the appropriate information for this procedure.

In principal I understand that 13.5% is refundable of the sale price.
This sum is then paid back to VAT collector monthly / annually in the way a business claims and charges VAT.

thanks in advance.
MB
 
Finance bill published last week provides that is is no longer possible to waive exemption to VAT on residential property. However the bill has not yet been enacted.
But it certainly does look like this will soon no longer be an option.
 
You must be registered for VAT before closing sale- it cant be done retropectively. When registering for Property purposes you must provide details of the properties that you wish to capitalise. Also, you must have a signed waiver of your VAT exemption for short term rental income on file with Revenue.
 
Of course the staff in the various Revenue registration departments will be working at breakneck speed all hours day and night over the next few weeks trying to ensure that all applicants trying to beat the Finance Act deadline are facilitated....Not :)
 
Cheers all.

Im supposed to be closing in Summer on this.
Do I need to close prior to the deadline or register for VAT and my intent be fore the deadline.
 
How will this affect those already registered for VAT. For example if they buy another investment property do they have to charge VAT on the rental just because they're registered. Another minefield coming up methinks!
 
I would certainly not recommend loweq for advice on this subject, or indeed any other. They have advertised heavily in magazines etc (& also on their website) pushing heavily the advantages of registering for vat on short-term lettings, but not to my knowledge making much attempt to point out the rather obvious drawbacks of so doing...and they charge €1500 for basic vat registration - about 10 times the industry norm.
 
Ubiquitous I am intrigued by your post, I asked about this process in the "Tax" Forum last week, would be interested to hear from anyone who has succesfully completed this process on a DIY basis. Thanks.

I had seen Loweq's ad in a Property mag and was thinking of using them as I am closing on an investment apartment in March. No connection at all with them by the way.

At the risk of repeating my other post, my rationale on this was that any loophole that the government were looking to close quickly had to be one that I should avail of while I still could! (Spot the Child of the 70's & 80's).
 
I agree the fee quote is almost criminal. €150 is a very good bargin though. I believe a true fair fee is about €400.
I have registered already. To understand what will happen with peopkle currently registered this is discussed in the "VAT on property review project 2006" available on Revenue website. I think you will see there are two option for those VAT registered and perhaps one is pretty favourable.
 
I am intrigued by your post, I asked about this process in the "Tax" Forum last week, would be interested to hear from anyone who has succesfully completed this process on a DIY basis. Thanks.
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I did this DIY and it was a doddle. 1500 for this service is absolutley scandulous. Dont know how they can justify this charge-there is no work involved, that anyone with basic admin skill could not do-and if you get stuck the Revenue will advise you free.
I had a few hic ups with getting my invoices from seller-but once I got them and submitted the claim I got my refund within 10 working days. PM for more info and my delivery address for the case of wine in payment for consultation!!
:D
 
liteweight said:
How will this affect those already registered for VAT. For example if they buy another investment property do they have to charge VAT on the rental just because they're registered. Another minefield coming up methinks!
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I dont see the minefield....

When you register your have to waive your exemption not to charge VAT on short term rental income. Therefore VAT has to be returned on all REnt received. Even before the amove to close off the loop properties that you did not capitalise (get refund of VAT on ) had to have VAT returned on the Rent.
If you wish to get out -or sell the capitalised properties before the VAT Rebate is repaid in VAT returns, you just pay back balance outstanding and then sell the property in the normal way, withut having to return VAT from the sale price.
 
Luternau said:
I dont see the minefield....

When you register your have to waive your exemption not to charge VAT on short term rental income. Therefore VAT has to be returned on all REnt received. Even before the amove to close off the loop properties that you did not capitalise (get refund of VAT on ) had to have VAT returned on the Rent.
If you wish to get out -or sell the capitalised properties before the VAT Rebate is repaid in VAT returns, you just pay back balance outstanding and then sell the property in the normal way, withut having to return VAT from the sale price.
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I also registered for VAT and it's a very simple process. Vat office will advise anyone who's stuck but basically it's a matter of filling out a form, receiving vat no. and then posting in your vat invoice to Rev. The amount charged above is scandalous.

Luternau I am assuming that someone who has bought an investment property would not wish to make vat payments if they have not received a vat refund on the property. Surely this becomes an added expense as rents have a ceiling and charging the tenant vat on top of this wouldn't wash with them? Normally the rental amount is vat inclusive. Basically if an investor, registered for vat, buys another property this year the vat will probably end up being at his/her expense?

If other rental properties were bought years ago then it doesn't really matter as the yield is very high on these anyway.
 
Thanks for that yankinlk. It answers my query above. I agree it looks like a fair solution. I presume it's only a proposal at the moment?
 
fester said:
Ubiquitous I ... would be interested to hear from anyone who has succesfully completed this process on a DIY basis.
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Do bear in mind that one has not "succesfully completed this process " until one has (i) registered for VAT (ii) purchased an eligible property (iii) applied for & successfully received a VAT refund (iv) in due course repaid the refund amount to the Revenue (v) eventually sold the property without any VAT complication.

This is not as simple as it sounds at first glance. Stages (i) to (iii) are the easy parts. The difficulties arise after that.

Many experienced tax advisors (myself included) are very sceptical of the long-term benefits of voluntary VAT registration for landlords. It certainly does not suit everyone - many eminent advisors believe that it does not suit anyone unless they have a sufficiently large portfolio of properties to allow them engage professional advice from (expensive) VAT specialists on a continuous basis over many years. If things end up going wrong, there is potential for them to go horribly wrong. Remember, the VAT system is primarily a tax-collection mechanism for the State. It was certainly never designed as a subsidy scheme for property investors.

That is why I am especially sceptical of so-called advisors who aggressively promote voluntary VAT registration to customers and whose fee structures are such that they have vested interest in convincing as many people as possible to VAT-register their properties, regardless of their circumstances.
 
I know a few people who registered for VAT for residential property investments a few years ago. They all regret it.

When you do this you have to charge VAT on the rent. In reality you can only get market rate for the rent, as the tenants are not interested in whether or not you have to pay the VAT, ie they won't give you extra rent because you are paying VAT on it. Hence, you have to pay VAT out of the market rate rent you receive.

It can also cause problems and large tax bills should you decide to sell the house at a later stage.

I'm no expert in this area but I would advise anyone doing this to proceed with caution and try to look at the long term implications.
 
It can also cause problems and large tax bills should you decide to sell the house at a later stage.
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This is not necessarily the case-if you sell the property while it is still capitalised then you must return VAT from the sale. Easy solution is to voluntarily de-register before the sale, repay the amount of VAT refund that is still out standing and then the sale can proceed as per standard property sales.

As for the charging of VAT on rents, it works like this.
Rent charged to Tenants is say 1000. Which under the VAT scheme isn actually 826 plus VAT @21%. So you repay your VAT refund this way. Its only a loan and has to be paid back. The up side is that any profit you make from rental is reduced by 21%, and therefore you have less profit reckonable for income tax. So you are also getting a tax break on thrading income-why bother with Sec 23 when you can go this way?

I have a few properties and was paying too much income tax. I did not want to buy sec 23 so I went this way. It suits me-but if you are not making profit or only a small amount, then perhaps its not for you. I did not use Loweq and can not see the justification of their charges.
 
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