VAT on property

Reclaiming VAT on property

I have just put a deposit on a new apartment as an investment. A friend was telling me that I could register for VAT and claim back the VAT. This sounds too good to be true! Does anyone know if this can be done?

Thanks.

Hi

Your friend is correct. If you register for vat,you can claim the vat back that was paid on the purchase of the property and also for all expenses relating to the rental property. You must charge vat on the rent and return this on a 2 monthly basis.

The original idea being that say you claimed 30k vat back , you would then pay the vatman from the vat on rent and this would take years.

Meanwhile the rental income for tax purposes is lower as it is pre vat.

At some point in the future, you would either pay the 30k back thru vat on rent or deregister and pay a lump sum. This would need to be done prior to selling the rental property.

Basically a free loan of 30k.

But apperently the tax law changed in 2005, and you cannot deregister before selling the property. I have not been able to confirm this, my a/c say it has , but it may be challenged in court.

Therefore you should research this very carefully as it could be a costly mistake.

Vat on property is an absolute minefield and there are many different senarios based on the length of the lease. I strongly suggest you contact your accountant or a tax consultant for expert advice before you proceed ...what you spend on advice now could save you a lot of money in the long-run.

"But apperently the tax law changed in 2005, and you cannot deregister before selling the property. I have not been able to confirm this, my a/c say it has , but it may be challenged in court."

Steelblue I don't understand where you a/c is coming from because, Section 7 of the VAT Act is the section dealing with Waiver of exemption and I don't see any such change in the FA2005 or any earlier year.

Thanks for your answers. I will speak to someone about this and if I get any further information I will post it here

I spoke to an accountant about registering for VAT last week. He went through the scenarios with me. It really helps with cash flow and there are also large Income Tax savings. He's going to go ahead and register me for VAT.

Hi Shoe,

I take it that there has been no change with regard to the ability to deregister, I replied earlier to Steel Blues comment that I can not see where the idea that you cannot deregister by repaying the VAT and taking the property back out of the VAT net.

Hi Shoe,

I take it that there has been no change with regard to the ability to deregister, I replied earlier to Steel Blues comment that I can not see where the idea that you cannot deregister by repaying the VAT and taking the property back out of the VAT net.

No problem deregistering when the VAT position is nil. I was told that if I do decide to sell the property before my VAT position is at zero I can repay the balance of the VAT and deregister. The property can then be sold without charing VAT.

It a funny old world-my solicitor tells me I cannot deregister prior to selling off my rental property and that as I am now Registered for vat I will have to pay vat on the sale
-my accountant says this is rubbish
he insists thatof course you can deregister so long as you have repaid the original vat lump sum
can someone please put this one to bed once and for all!!! Thanks

One significant downside to voluntarily registering for VAT on property is the possibility of future legislative changes in this area.

If you are now investing in property, the current procedures, rules and issues governing VAT deregistration are largely irrelevant - what will affect you will be the corresponding rules that will be in force whenever you sell the property.

If the State can spot some way to squeeze more money out of landlords by changing some aspect of this scheme in years to come, they will be sorely tempted to do so.

Does anyone know if you can do the same thing for investing in a new UK residential property.

Friday no same does not apply in the UK.

there is an ability to reclaim some VAt on refubishment a special scheme exists for this

Parnell said:

It a funny old world-my solicitor tells me I cannot deregister prior to selling off my rental property and that as I am now Registered for vat I will have to pay vat on the sale
-my accountant says this is rubbish
he insists thatof course you can deregister so long as you have repaid the original vat lump sum
can someone please put this one to bed once and for all!!! Thanks

Click to expand...

Parnell the accountant is right, the problem is confusion with changes introducted in FA 2005, however these do not apply to waiver of exemptions

Registering for VAT is one thing - useful if you're self-employed maybe. Short term renting is exempt from VAT. You choose if you WANT to pay rent on the rental income - then you claim the VAT element of the cost of the property. If the 'plan' you have isn't pretty straight forward (are you going to make life difficult and form a company and sell your house to yr company blah blah...?) then a letter from Revenue will kill the risk. Such letters are less easy to acquire than hen's teeth and can take as long to be produced.

No Joe, the idea here is that when buying a property for letting purposes,it is possible to get an interest free loan for want of a better term from the revenue by way of a lump sum enlieu of the vat charged on the sale of the property to you. Its value- and what we are discussing is whether this is a good financial proposition-it can create useful cashflow advantages-but it means that you have to register for vat,make vat returns and of course repay the lump sum proferred in the first instance.
The key question appears to be whether or not you will be able to deregister later.