# In forced sale of BTL property,how much does VAT man get?



## zxcvbnm (5 Mar 2014)

I am being forced by the bank to sell my investment property at a reduced price.

Sale price - €290k
Original purchase price - €440k
Outstanding mortgage - €410k

When i bought it initially, i also reclaimed the VAT (€52k)

Since i bought it i have paid about half of the VAT back (based on VAT received from rental income). SO c. €26k outstanding

When I sell, I understand the VAT man is first - and what is leftover goes to the bank.

Although I have heard 2 theories as to what the VAT man gets.

My question is:
Does the VAT man get all his money owed (i.e. €26k)

OR

Does he get the percentage of what the sale price was.  (i.e. I am selling it for 66% of the initial price => he gets 66% of €26k = c. €18k)


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## Joe_90 (5 Mar 2014)

What kind of property is it? commercial I assume.

VAT on property is complex.  So get professional advice.

In general - If it is commercial property was the sale subject to VAT?  If it was subject to VAT then the VAT is accounted for by the purchaser under the reverse change basis and if they are registered then they can recover the VAT happy days you have no issue.

If the sale was not taxed then you have a Capital Goods Scheme adjustment so you have an exempt sale and you have to repay the VAT using the formula Initial VAT x (20 - number of years let) / 20.

Hope the deal has not gone through already!

Did I mention get professional advice.


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## zxcvbnm (5 Mar 2014)

Hi Joe - thanks for reply.
Sale has not gone through yet.

Not sure i fully understand your answer though.

This was just a regular investment property i bought. Back in the day you were able to reclaim the VAT on any new investment property at 13.5% which is what i did.
The idea is you then pay this back to the revenue based on 21% of the rental income until it is all paid back.

However - the bank are now making me sell-but at a loss. And i still have VAT outstanding.

So i am assuming that out of the sale price,the VAT man will be owed some money.
But not sure how much he gets?


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## Joe_90 (5 Mar 2014)

Is it commercial or residential property?

Is the purchaser in a business that is VAT registered.

Normally you buy a property and recover the VAT you then charge the tenant VAT and remit it to the Revenue Commissioners.  When you sell the property the VAT is based either on the price of the property if you opt to tax the sale ie it's the price plus VAT (although VAT is not paid by the purchaser).

If its an exempt sale then the VAT is based on the formula.

So the first this you need to establish is if the purchaser is VAT registered as this may result in no payment by you to the Revenue Commissioners.


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## Bronte (5 Mar 2014)

Well whatever about the VAT question, I'd be worried the bank will take all the sale proceeds and you'll still owe the VAT.  Has the bank agreed to the auctioneer and solicitor costs out of the sale proceeds?


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## zxcvbnm (5 Mar 2014)

Bronte said:


> Well whatever about the VAT question, I'd be worried the bank will take all the sale proceeds and you'll still owe the VAT.  Has the bank agreed to the auctioneer and solicitor costs out of the sale proceeds?



My understanding is the bank cant do this.
This all has to be done with the knowledge of the revenue an that revenue get paid before the banks.


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## zxcvbnm (5 Mar 2014)

Joe_90 said:


> Is it commercial or residential property?
> 
> Is the purchaser in a business that is VAT registered.
> 
> ...



Its just an apartment.
The purchaser is just an individual - not sure if they are buying it to live in or rent out.
So id imagine they wouldn't be VAT registered or anything like that.

So im assuming its what you mean by exwempt sale.

Initial VAT reclaimed = 52000
Years let = 8

SO by your formula i owe 52000 * (20-8)/20 = 31000 yes?
But I have already paid out about €26k in VAT over the years anyway? So surely i can't owe more than the other €26k no?


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## Joe_90 (5 Mar 2014)

Ah the old waiver of exemption in short term lettings of residential properties.

Short term gain for long term pain.


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## zxcvbnm (5 Mar 2014)

Joe_90 said:


> Ah the old waiver of exemption in short term lettings of residential properties.
> 
> How many years have you let the property out?



Sorry - i edited my earlier post before i noticed you replied.

Please see my previous post. Thanks.


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## Bronte (5 Mar 2014)

zxcvbnm said:


> My understanding is the bank cant do this.
> This all has to be done with the knowledge of the revenue an that revenue get paid before the banks.


 
How does that work in practice?


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## zxcvbnm (5 Mar 2014)

Bronte said:


> How does that work in practice?



When I sell all the funds go to the bank (or else perhaps my solictor).

Revenue are in the loop on the transaction - and the funds are then distributed between bank and revenue.
Revenue have legal right to first call on the money. 

Its a legal pecking order. The banks can't just keep all the cash. They are legally obligated to give revenue their share.


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## Bronte (5 Mar 2014)

No they are not Zvc, the obligation to revenue is yours and yours alone.


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## zxcvbnm (5 Mar 2014)

Bronte said:


> No they are not Zvc, the obligation to revenue is yours and yours alone.



Oh. Ok. That's good advice. I didn't know that. Thanks.


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## Joe_90 (5 Mar 2014)

OP I think you need to get professional advice on the VAT and legals.

Normally where VAT is collected on a sale it is remitted to the Revenue as part of the contract. In this case VAT is not being charged so the purchaser is not paying VAT over to you for you to remit.

VAT is a business tax, you registered for VAT and recovered the VAT on the purchase @13.5% but the rent is subject to 23% VAT so one you have received €227,500 in rent you are paying the balance to Revenue.

Registering for VAT for residential property has to carefully considered as it can be expensive as  it can go wrong.


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## Joe_90 (6 Mar 2014)

I have been a little unfair to the OP in not mentioning the option that he has to cancel the waiver of exemption which a professional advisor would outline first.

If he was to cancel the waiver and repay the VAT claimed less VAT paid on lettings prior to an exempt sale then thats the liability.

http://www.revenue.ie/en/tax/vat/leaflets/property-guide/waiver-exemption-transitional-measures.html


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## Bronte (7 Mar 2014)

How's he going to repay VAT if it's a forced sale, would imagine the person is broke.


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## zxcvbnm (7 Mar 2014)

Bronte said:


> How's he going to repay VAT if it's a forced sale, would imagine the person is broke.



I assume it will have to come out of the sale of the property will it not?
Presumably revenue have first call over the cash from the sale of the property?

In fact - my preference is the bank would get all of the cash from the sale as i have a family member acting as a guarantor.
Is it a possibility that the bank could get all of the cash from the sale? 

I think i am going bankrupt regardless due to other debts.


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## Bronte (7 Mar 2014)

zxcvbnm said:


> Is it a possibility that the bank could get all of the cash from the sale?


 
Yes it is entirely possible.  Unless there is a legal obligation on the bank or the solicitor to pay the VAT.  Ireland is in general self assessment.  So you the person liable for this VAT are supposed to make a declaration and pay your taxes.  If they don't get paid the VAT then you are liable for it, and if you're going bankrupt or whatever, declare the unpaid VAT and sort out all outstanding tax liabilities in the bankruptcy.  Maybe income tax on rental income as well.


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## zxcvbnm (7 Mar 2014)

Well that's it. In only guessing here - but I'm working on the assumption there is a legal requirement for the bank to pay the vat out of the sale. 

Ots only guesswork by me (I will be getting legal advice) 
But it's difficult to see how it would be otherwise. 

I may be wrong of course.


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## 44brendan (7 Mar 2014)

Yes the bank will be accountable to pay any unpaid VAT from the sale proceeds. This is standard practise in all sales of re-posessed properties where a VAT element remains outstanding.


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## Joe_90 (7 Mar 2014)

I don't know the answer and I would agree that the VAT would have to be remitted to the Revenue (by the vendors solicitor) if it was charged and collected from the purchaser. 

I would be surprised if the bank assume responsibility for the VAT in the case of an exempt sale (where no VAT is collected) or a cancellation of waiver of exemption prior to an exempt sale.


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## gurks187 (16 Apr 2014)

*any update*



zxcvbnm said:


> Well that's it. In only guessing here - but I'm working on the assumption there is a legal requirement for the bank to pay the vat out of the sale.
> 
> Ots only guesswork by me (I will be getting legal advice)
> But it's difficult to see how it would be otherwise.
> ...



Im just looking up this same situation... property in negative equity, forced to sell and looks like same advice on the VAT. Had been advised by accountant that cost would come out of selling price but the bank has just refused this.  Would be eager to get an update from you on what your bank decided. (We are with ebs - now AIB but still speaking with ebs team in there)


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## Bronte (16 Apr 2014)

44brendan said:


> Yes the bank will be accountable to pay any unpaid VAT from the sale proceeds. This is standard practise in all sales of re-posessed properties where a VAT element remains outstanding.


 
What's the legal basis for this?


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## zxcvbnm (16 Apr 2014)

gurks187 said:


> Im just looking up this same situation... property in negative equity, forced to sell and looks like same advice on the VAT. Had been advised by accountant that cost would come out of selling price but the bank has just refused this.  Would be eager to get an update from you on what your bank decided. (We are with ebs - now AIB but still speaking with ebs team in there)



OP here. I must say in very surprised by this. I've been told otherwise by my solicitor. 
Does you solicitor not get the cash first upon sale ? 
So surely you can instruct your solicitor to pay the vat man no?


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## Bronte (16 Apr 2014)

zxcvbnm said:


> So surely you can instruct your solicitor to pay the vat man no?


 
But hasn't your solicitor signed an undertaking with the bank before he received the title deeds?


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## 44brendan (16 Apr 2014)

Just to reiterate my earlier post. The VAT must be paid from the sale proceeds. This means that the Bank cannot sell the property without paying the outstanding VAT. If you require confirmation on this response please refer the issue to an experienced conveyancing solicitor.


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## Joe_90 (16 Apr 2014)

@Brendan44,

So the solicitor puts a clause in the sales contract saying that the sale is exempt from VAT as it is the sale of "old" property and this will result in a VAT clawback under the Capital Goods Scheme and that this VAT liability will take precedence over the security holder.

I've not seen it in practice under the new rules.

  I would agree that the VAT if paid by the purchaser could not be taken by the bank but that is not the case here.


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## Joe_90 (16 Apr 2014)

zxcvbnm said:


> OP here. I must say in very surprised by this. I've been told otherwise by my solicitor.
> Does you solicitor not get the cash first upon sale ?
> So surely you can instruct your solicitor to pay the vat man no?



Normally your solicitor would give an undertaking to give the proceeds to the bank, you can't "instruct" him to do what you want.

So did you do a capital good scheme adjustment on the exempt sale or a cancellation of waiver adjustment in the end to deal with your VAT issue.


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## gurks187 (16 Apr 2014)

We have asked our solicitor and accountant to engage with the bank and will update you on progress.   By the sounds of what you are saying though it seems like ebs have adopted the US insurance industry stance of refuse first and then only after lots of fighting,  do what they are supposed to do!!


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