We bought a second house to do up and resell. Just getting started (direct labour). The blockie asked if we had a company or not. He said to my wife that we either pay VAT now or CGT later and that we should take advice. I don't understand this.
Can anyone explain, please?
You should definitely take advice.
This is absolutely fundamental to how your investment will be taxed, and thus how it will behave financially, and how free you are to take cash out when you desire.
http://www.omahonydonnelly.ie/irish-tax.htm or
http://en.wikipedia.org/wiki/Taxation_in_the_Republic_of_Ireland has a basic description of Irish taxation. But the complexity is in the detail.
Broadly speaking, if you are acting as a company in this redevelopment, you'll need to pay company taxation. CGT is not a company tax, but a personal tax. Company profits are taxed via corporation tax (e.g. profit from rental or profit from sale of property). You will generally pay VAT for services within a country, but companies may be able to offset VAT expenses (e.g. building work) against income (e.g. sale of property) and sometimes these services have special treatment and are zero rated. However, if you sold or leased your property on at the end of the redevelopment, you may also have to charge VAT depending on the history. This is a very specialised and changing area of VAT law. e.g. [broken link removed] . Of course you also then have the overhead of running a company and making VAT returns, which is not trivial or cheap.
If you are acting as a private individual it works the other way around. You cannot offset VAT on expenses against income, but on the other hand when you sell the property you may be liable to pay tax on the capital gain (profit from sale of 2nd property).
It depends very much on where you live, where you will live in the future, what other income you have, where the property is located, when you want the cash, how you will exit if selling or leasing the property, will you repeat this again, how substantial "doing up" is as a redevelopment (work >10% of total property value), and your view on how much capital gain will be made etc. etc. on which of the two options is preferable.
So it is very much a personal choice which is better, which is why you really need professional advice.
Disclosure: I do
not provide professional advice on irish taxation.