# Claiming VAT back on new investment properties



## Solutions (15 Jun 2006)

I have been investigating this for the last few months and wondered had anyone anyone had any problems reclaiming VAT back on their investment properties?

If you are considering doing this in the future I have discovered a more economical way of achieving it and am happy to share it with you if interested.


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## bazermc (16 Jun 2006)

Solutions said:
			
		

> I have been investigating this for the last few months and wondered had anyone anyone had any problems reclaiming VAT back on their investment properties?
> 
> If you are considering doing this in the future I have discovered a more economical way of achieving it and am happy to share it with you if interested.


 
What sort of problems?

I know revenue are really strict on paying out VAT refunds on investment properties they need receipts etc...  I suppose this is due to the amont of money involved

Whats you more enconomical way? - Did you waive your exemption when you registered for VAT?  As its not possible to back date unless your tenat can recover the VAT you charge them.


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## ClubMan (16 Jun 2006)

Please post in the correct forum. This was originally posted in the _Mortgages and Home Buying _forum but is a _Property Investment _query.


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## viztopia (19 Jun 2006)

this would be a very bad idea to reclaim vat on an investment property like this. some people do it to get the refund and then to offset this against the actual cost of the property. In the first case you will more than likley have to get an accountant to register yourself and to prepare bi-monthly or annual vat returns. As you have elected to register for vat you will now have to pay vat on your rental receipts. there is a 99.999999% chance that your prospective tenant wont be registered for vat so you will have to suffer the vat liability in your rental income. 
Finally the most important aspect is that when you eventually go to sell your property which may be never, 20 years or due to ill fortune may be in 12 months time you will have to charge vat on the sale price. as property prices are increasing dramatically you will more than likley have to pay over a lot more vat than you received on the purchase. in my opinion to register for vat on rental property like this is a very expensive form of finance.


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## bazermc (19 Jun 2006)

Viztopia

I agree with you 100%
The only time it a viable option is when you have a VAT registered tenant able to recover VAT charged to them AND you have a substantial portfolio of property


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## liteweight (19 Jun 2006)

deleted.


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## liteweight (19 Jun 2006)

There are a number of good reasons to register for vat. The vat repayment can be utilised as interest free loan, perhaps as deposit for next investment property. Although you have vat repayments to meet, income tax is charged on net income and so there is a saving on income tax. When it comes to resale then you simply de register before selling but of course Rev will look for balance of money due to them.


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## liteweight (19 Jun 2006)

deleted


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## viztopia (19 Jun 2006)

if only it was as easy as registering and de-registering every Tom, Dick and Harry would be at it. There are a some of people promoting this registering for vat to enable them to claim it back. you will find whoever is promoting it has a vested interest in the scheme.


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## liteweight (19 Jun 2006)

It is extremely easy to register for vat. Form is available from Vat  Office (sorry can't remember no. at mo). Fill in form and return it and they'll contact  you with vat  reg. no. You will have to waive your right to excemption on rental income. One pitfall is that you cannot decide to pay vat on one property and not others in your portfolio. You also have to register before you make final payment on apt/house.

When you've paid you ask builder's solicitor for vat invoice and send this in to vat office. It took approx 4 weeks for me to get rebate.  I agree some people have a vested interest. I took advice which cost three hundred and he wanted a further one thousand, two hundred to proceed with registration. I declined, did it myself and it cost nothing.


			
				viztopia said:
			
		

> if only it was as easy as registering and de-registering every Tom, Dick and Harry would be at it. There are a some of people promoting this registering for vat to enable them to claim it back. you will find whoever is promoting it has a vested interest in the scheme.


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## ubiquitous (20 Jun 2006)

liteweight said:
			
		

> It is extremely easy to register for vat.



Are you sure its just as easy to deregister? There is more to it than completing a couple of forms.


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## liteweight (20 Jun 2006)

Perhaps I should have said 'comparatively' easy to register for vat. Of course you need receipts but this should not be a problem on new property. Phone calls with regard to rebate will also be necessary. The biggest problem I see is that if you wish to sell in a hurry, you would have to have money to pay off balance to vat man. Vat on rental income is not treated in same way as business, you must pay revenue the amount you received over time.This could be a real problem if you have a number of properties, all registered, you might have received quite a lot!

Haven't tried to de-register yet so can only go on advice given, which was to fill in more forms and pay what you owe. If anyone knows any different I would be anxious (literally) to hear it!


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## Niall M (20 Jun 2006)

liteweight said:
			
		

> There are a number of good reasons to register for vat. The vat repayment can be utilised as interest free loan, perhaps as deposit for next investment property. Although you have vat repayments to meet,* income tax is charged on net income and so there is a saving on income tax*. When it comes to resale then you simply de register before selling but of course Rev will look for balance of money due to them.


 
you save on income tax.... but it costs you more, for example:

Vat Registered 
Rent 121
Vat to be paid: 21
Income Tax say 42%: 42
Net income: 58

Unregistered
Rent 121
Vat 0
Income Tax say 42% 50.82
Net Income: 70.18


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## Hedger (20 Jun 2006)

But if you are using the VAT as an interest free loan this doesn't really matter. it just becomes part of your overall funding repayment. The fact is that there is a saving on income tax. BTW, VAT on a rent of 121 would be 25.41 not 21.


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## liteweight (20 Jun 2006)

Niall M said:
			
		

> you save on income tax.... but it costs you more, for example:
> 
> Vat Registered
> Rent 121
> ...



You have to look at the whole picture


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## northdub (20 Jun 2006)

I registered for VAT to claim the vat back on a property. You have to be make sure you send in your VAT returns every 2 months ( I found this a pain). I decided to sell the property and deregistered a couple of months before I sold. I paid back the outstanding VAT balance (original VAT at the pruchase price - payments made since registered).
 My accountant took care of the deregistering but I can't remember it being complicated.  If I had waited  to payback the VAT at the sale stage of the property, the VAT clawback would have been based on the sale price, rather than the original  purchase price.


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## Trustmeh (20 Jun 2006)

Finally, someone with experience rather than opinion. Thanks for the post northdub.


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## Howitzer (20 Jun 2006)

northdub said:
			
		

> I registered for VAT to claim the vat back on a property. You have to be make sure you send in your VAT returns every 2 months ( I found this a pain). I decided to sell the property and deregistered a couple of months before I sold. I paid back the outstanding VAT balance (original VAT at the pruchase price - payments made since registered).
> My accountant took care of the deregistering but I can't remember it being complicated. If I had waited to payback the VAT at the sale stage of the property, the VAT clawback would have been based on the sale price, rather than the original purchase price.


 
NOW I get it!

Obviously this is only viable for someone just getting into property investment now and doesn't already have a portfolio of properties. Effectively an interest free loan, but a loan nonetheless which has to be repayed, and from personal experience making VAT returns is a fiddly oul business. 

Seems like a viable mechanism for someone to rapidly gear up, as you're buying at below the market now (market rate - VAT), paying the difference later. If the market keeps rising you're laughing. But as with all gearing mechanisms it stores up problems down the line if you run into difficulties.

I can definately see how advice from people with vested interests regarding using this route may be given without the buyers best interests at heart. Much like interest only mortgages this seems like a way of pumping a market as it encourages people to buy at prices that they would not normally be able to afford.


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## liteweight (20 Jun 2006)

northdub said:
			
		

> I registered for VAT to claim the vat back on a property. You have to be make sure you send in your VAT returns every 2 months ( I found this a pain). I decided to sell the property and deregistered a couple of months before I sold. I paid back the outstanding VAT balance (original VAT at the pruchase price - payments made since registered).
> My accountant took care of the deregistering but I can't remember it being complicated.  If I had waited  to payback the VAT at the sale stage of the property, the VAT clawback would have been based on the sale price, rather than the original  purchase price.



Glad to hear that de-registering isn't too complicated! Thanks Northdub. BTW  I do my own vat returns and once you have been paying for a couple of months, it's possible to arrange an annual payment to the vat office. They are usually obliging. So far I have only had tenants on one year lease basis  and once initial fit out is done there is virtually no other rebates due, so payment every two months is the same amount.


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## dam099 (21 Jun 2006)

northdub said:
			
		

> If I had waited to payback the VAT at the sale stage of the property, the VAT clawback would have been based on the sale price, rather than the original purchase price.


 
Would it have been a VAT clawback though? 

If you don't deregister prior to the sale I would have thought you would end up having to charge VAT on the sale price plus you would get no consideration for the VAT already paid on rent?


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## northdub (21 Jun 2006)

Sorry, I just used VAT clawback to describe the money that would have to be paid back. Maybe not correct description.
When  my accountant enquired about deregistering, the VAT office/revenue sent a breakdown of the VAT payments and repayments from when we registered. The sum that I owed/ would need to repay was the balance of what I have claimed (VAT of house purchase) minus what I have repayed (vat on rents, management fees, bills etc). I will look back through these documents to confirm.

I wouldn't know if  you would get no consideration on the VAT already paid on rent, if you leave deregistering until the sale. As I was not doing that option, I didn't find out the details.

One of the reasons, I got an accountant was due to this VAT issue. I registered for VAT, based on the advice of the financial adviser associated with the development. I did not look into the implications of being registered for VAT or seek independent advice.  Only later, did I think I better check it all through with an accountant. 
Personally, If I was to do it again, I would not register for VAT and would rather have borrowed the money from the bank.


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## liteweight (21 Jun 2006)

dam099 said:
			
		

> Would it have been a VAT clawback though?
> 
> If you don't deregister prior to the sale I would have thought you would end up having to charge VAT on the sale price plus you would get no consideration for the VAT already paid on rent?


Correct PLUS vat on new build is 13.5% while vat on re-sale is 21%. Imperative you de-register.


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