Individual VAT registration for property

I

ivorystraws

Registered User
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Hi,

I have recently been informed recently by a student accountant that it is possible for an individual to register themselves for VAT in order to claim the VAT back on the purchase of a property. The VAT is then repaid to the Government each month ....but for how long or how much I'm not sure?

Can anyone explain this procedure and the repercussions of it as I would wonder why more people don't avail of this?

Also, how would this work for a joint mortgage for a property purchase?

Any helpful information is much appreciated.
 
This has been discussed many times on AAM including at least one discussion in the past few weeks. Check recent threads in the Property Investment and Tax forums for more.

The big drawback of this procedure (and the reason why it is not often used by individual investors) is that it is complicated and can have unpleasant long-term financial consequences for those who use it in the event of changes of circumstances in future years. As such, each case would require ongoing reviews & monitoring by specialist advisors over a number of years, the cumulative cost of which doesnt come cheap.
 
AFAIK it's done when you set up a company and the property is held by the company for tax purposes. In order to sell the property, you are effectively selling the company and it's main asset - the property.
There is a stamp/VAT saving alright, but I'm not sure how much.
I wouldn't enter into anything like this without taking professional financial advice and tax advice, this would be well worth the fee.
I definitely wouldn't consider it for my PPR, if that's what you're thinking?
 
mo3art said:
AFAIK it's done when you set up a company and the property is held by the company for tax purposes. In order to sell the property, you are effectively selling the company and it's main asset - the property.
There is a stamp/VAT saving alright, but I'm not sure how much.
I wouldn't enter into anything like this without taking professional financial advice and tax advice, this would be well worth the fee.
I definitely wouldn't consider it for my PPR, if that's what you're thinking?
Click to expand...

You dont need to set up a company to register for VAT, sure the country is full of VAT registered sole traders. Putting the property in a company is also a very bad move because you risk a double cgt hit - once when the company sells the property and twice when you liquidate the company to get the spons into your own pocket. Dont count on selling the company shares, buyers dont want hassle of a company and the problems it could hold. You create a tax trap by putting property into a company and the chances are you'll be the one suffering cos theres few chumps in the game.

Keep it simple, VAT reg will generally only give you a cashflow advantage - a timing difference, but if you mess it up you'll be left chunking 13.5% of your sale proceeds to the government - not a wise move. Steer well clear unless you are prepared to go the long road and pay advisors dearly along the way.
 
ClubMan said:
Is [broken link removed] relevant in this context?
Click to expand...

It is in so far as it muddies the water a little bit more. The 2007 Finance Act is primed to ring changes but no idea what they'll be. So heavy caveats needed on advices at the moment as absolutely uncertain what the future position will be.

You'd hope there would be sympathetic transitional measures but sure you just dont know.

2 camps - (i) big bang, bin Section 4 VATA & start again & (ii) keep tinkering and frying everyones brain
 
OK, I've got a lot of info now on registering for VAT for a property purchase but I still have two main questions;

1. I am purchasing a house with my brother so how do I go about registering for VAT... do we have to form a partnership? do the two of us register for VAT?

2. I've been informed that as my brother will be an owner occupier in the property but the other rooms will be let out, that registration for VAT will affect stamp duty payable on the property and will affect our Mortgage interest relief... can anyone clarify this fuurther for me please?

Any comments or feedback is most welcome.
 
ivorystraws said:
OK, I've got a lot of info now on registering for VAT for a property purchase but I still have two main questions;

1. I am purchasing a house with my brother so how do I go about registering for VAT... do we have to form a partnership? do the two of us register for VAT?

2. I've been informed that as my brother will be an owner occupier in the property but the other rooms will be let out, that registration for VAT will affect stamp duty payable on the property and will affect our Mortgage interest relief... can anyone clarify this fuurther for me please?

Any comments or feedback is most welcome.
Click to expand...

tis a very convoluted one. He is going to use his share to live in (or say, 40% of his 50%). Using somethinig yourself means you are self-supplying, not making a vatable supply, therefore VAT exempt, therefore no right to recover VAT.

Ye would normally form a partnership but the recovery rate (the % of the VAT paid out that can be claimed from Rev) would be all over the shop due to your brothers circumstances.

Stamp duty would be on the VAT exclusive cost of the property (dunno if this is a specific rule or just an application of the general principle that you should have to pay tax on a tax) - but again, given the complications the VAT "excl" price not too clear due to your bro.

I'd say MIR might be ok - you only get relief up to a certain limit anyway, though of course you, as a landlord, would be entitled to full interest deduction (Bacon rules gone with a few years).

To be honest I think you should ignore the VAT cos you'll pay loads fees trying to work it out, risk of having to account for VAT on the uplift when eventually sell. This free advice stuff is grand till people get sick of it plus you cant rely on it - I could be talking through my trousers and you couldnt sue me (I hope!!!!!!!) if I got something wrong - which wouldnt be that unlikely since I have only half the story and some people dream up the weirdest stuff.

You buy 1 apt, he buys another, you rent, he lives, ye dont pay loadsa fees and wonder if the wolf is coming to get ye.

That's €600 please.
 
Thanks very much Betsy Og for your detailed reply.... €600 winding it's way to you!

It's convoluted stuff alright. I'm really just getting as much general information as I can before I can make a decision on which approach to take.
An accountant told me also that since the new property will come fitted out that the VAT on the whole house could come to 21%, not the usual 13.5%... but since this is an area I'm not expert in at all, I just thought I'd get more than one opinion on this subject.
I've also been considering the services of this website;
www.loweq.com
who offer a full service in relation to vatback on new residential property being bought to let by investors.

Anyway, my simplified view of your opinion and information which I've researched is;

1. If my brother doesn't live in the house, then we're liable for stamp duty at the VAT exclusive purchase cost of the property.
2. Since we are both FTB, I'm assuming we're still eligible for MIR
3. We form a partnership to register for VAT to be reclaimed on property
4. Pay VAT on rental earnings to the revenue
5. Invest in other property with VAT lump sum

How's that sound or should I just quit and leave things be ;-)
 
ivorystraws said:
.
An accountant told me also that since the new property will come fitted out that the VAT on the whole house could come to 21%, not the usual 13.5%... but since this is an area I'm not expert in at all, I just thought I'd get more than one opinion on this subject.

FOR STARTERS I WOULDNT BE PLACING TOO MUCH RELIANCE ON THAT ACCOUNTANT -- NO WAY 21% ON HOUSE. HE MUST BE THINKING OF THE "PACKAGE RULE" BUT THAT APPLIES TO GOODS NOT PROPERTY (i.e. BRICKS AND MORTAR), PLUS EVEN IF PACKAGE RULE APPLIES THE SIMPLE WAY TO GET OVER IT IS TO INVOICE DIFFERENT VAT RATED GOOD SEPARATELY.

GETTING VAT BACK IS TOTAL DODDLE, YOU COULD DO IT YOURSELF IN A STATE OF INEBRIATION - WOULDNT PAY TOO MUCH FOR THAT - PLUS YOU SAID THEY DO IT FOR "BUY TO LET", BUT THATS NOT EXACTLY YOU.


Anyway, my simplified view of your opinion and information which I've researched is;

1. If my brother doesn't live in the house, then we're liable for stamp duty at the VAT exclusive purchase cost of the property.
2. Since we are both FTB, I'm assuming we're still eligible for MIR
3. We form a partnership to register for VAT to be reclaimed on property
4. Pay VAT on rental earnings to the revenue
5. Invest in other property with VAT lump sum

How's that sound or should I just quit and leave things be ;-)
Click to expand...

REMEMBER WHAT I SAID RE ENTITLEMENT TO VAT BACK - REVENUE WONT LET YOU REGISTER UNLESS YOU CAN SHOW THEM YOU WILL MAKE A TAXABLE SUPPLY - SOMETHING NOT VERY APPARENT.

I NOITCE YOU MAKE NO MENTION OF EXIT STRATEGY - INWINDING AINT FUN UNLESS YOU'VE THOUGHT IT THROUGH.

SO DONT WASTE YOUR TIME ON THIS STUFF - I DONT SEE THE BENEFITS - AND 1 WRONG MOVE & YOU'RE ............

(only benefit in this VAT stuff tends to be cashflow - when you want to de-register, having ELECTED to register they look back over last 3 yrs to see if they are up or down out of you - and you pay back if they are down). - & that assumes they register you in the first place. Only those OBLIGED to register are not subject to 3 yr look back, to be obliged you need to be making taaxable supply - not defo iF short letting with exemption waived qualifies. Given your complex situation its crying out for a VAT audit.

Dont let me make your mind up but if it was me I'd stay well clear.

Thats €2,800 + VAT (that just brings me over the registration threshold - pity your're not VAT registered ;-) !! )
 
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