# VAT back on investment property to let



## goose (22 Jul 2006)

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


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## markowitzman (23 Jul 2006)

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.


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## jemmi (23 Jul 2006)

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.


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## liteweight (25 Jul 2006)

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.


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## bazermc (25 Jul 2006)

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.


 
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


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## markowitzman (25 Jul 2006)

does landlord have to register other properties in portfolio for vat as well and/or charge vat on rents on other properties?


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## Howitzer (25 Jul 2006)

markowitzman said:
			
		

> does landlord have to register other properties in portfolio for vat as well and/or charge vat on rents on other properties?


 
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.


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## Howitzer (25 Jul 2006)

..


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## liteweight (25 Jul 2006)

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



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.


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## liteweight (25 Jul 2006)

markowitzman said:
			
		

> does landlord have to register other properties in portfolio for vat as well and/or charge vat on rents on other properties?



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.


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## cochese (25 Jul 2006)

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.


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## bazermc (25 Jul 2006)

liteweight said:
			
		

> Logically, I don't understand how someone who is no longer registered for vat can be charged vat in the future.


 
because the supply is taxable and the registration threshold for property transactions is nil


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## San Martino (25 Jul 2006)

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.


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## liteweight (26 Jul 2006)

bazermc said:
			
		

> because the supply is taxable and the registration threshold for property transactions is nil



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.



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


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## San Martino (28 Jul 2006)

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......


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## liteweight (28 Jul 2006)

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......



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.


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## katiealice (28 Jul 2006)

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)


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## liteweight (28 Jul 2006)

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


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## katiealice (28 Jul 2006)

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.


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## katiealice (28 Jul 2006)

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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## liteweight (28 Jul 2006)

Thanks Katiealice. I understand all the implications and my view is the same as yours. Its just that when I expressed them on AAM, there were a number of posts that disagreed with me. I began to question my own understanding.

With regard to de-registering, it was a hypothetical question (no intention of doing so). Again some people said that it was impossible to de-register, if , for some reason, you needed to sell the property quickly. Glad you were able to clarify it for me.

On-line, I am able to see what VAT rebate I received and what I have paid to date. Call it a balance sheet.


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## corklad74 (16 Aug 2006)

Hi, 
  I'm buying an investment property (property 1) and I'm thinking about becoming VAT registered. I understand I will pay the VAT back over the years from my rent. I also have another residential property (property 2) that I'm renting out currently. Again I understand that this rent will also be subject to vat when/if I become registered. My questions are

1- Once I have the lump sum paid back Can I then de-register and property 1 drops out of the VAT net? Can I sell it without being charged VAT.

2- I plan to sell property 2 next year. Would the sale of this property be subject to VAT if I register now for VAT. Its a secondhand house and I never claimed VAT back on it.

3- If I purchase a property to live in while registered does that have implications.

rgds


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## viztopia (17 Aug 2006)

very topical thread this in relation to vat on property. i have one simple question/point to make. if you were a business person not registered for vat because you came under the treshold for registration (€25,500 for supply of service/€51,000 for suply of goods) and you registered for vat to buy a property, then it would make sense that you would have to charge vat on your trading income? any comments?


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## liteweight (17 Aug 2006)

You must register for VAT before you buy a property. You then waive your right to VAT exemption on rental income. This means that any property you have is liable for VAT on rent/sale. It is possible to pay back lump sum and deregister. Your PPR is not affected by this.

Viztopia, AFAIK, (nearly positive) any other business, i.e. other than rental is not affected.



Edit: You cannot de-register one property at a time...it's all or nothing.


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