implications of paying VAT when buying land for commercial development

[rav147]

hi i have been offered to buy land from a large company and they have added VAT onto the sale price. what does this mean for the future? do i need to be VAT registered to claim it back? do i need to charge VAT to my future tenents? i plan to build 3 retail units and rent them out, my earnings will be below £50,000 so i assumed i would not need to register for VAT.
thanks

[vatexpert]

Since the letting of land is exempt from VAT, you do not need to register for VAT. However, if you want to recover the VAT paid out on the land and on other taxable costs you will need to register for VAT on a voluntary basis and make an election to waive exemption. This can be dome at the same time by completing forms VAT 1 and VAT 1614. Of course, VAT would then have to be charged on the future rents.

Joe Wilkins
vatexpert.net

[rav147]

thanks for your answer it was very precise and helpful.
is it not possible to deregister after building works are completed and property is ready to rent out? if not then perhaps a change of owner may be a possible way to achieve deregistration

[taxadvice]

Unfortunately none of the above can work. You can register only if you intend to make taxable supplies. For lettings to be taxable, youÂ’d have to waive VAT exemption, and this cannot be removed for 20 years if not longer, as it is anticipated that the Chancellor might extend this. If you sell the property, you would have to charge VAT unless the purchaser also waives VAT exemption.

If the market value of construction services on the project exceeds £100,000, you will be liable to register in order to account for a VAT charge on a self-supply of construction services, for details of which see section 5 of VAT Notice 708. You can register for VAT earlier, as you are intending to make a taxable supply.

If market value of construction services is likely to be under £100,000, you will have to assess whether it will be advantageous to register for VAT, and to waive exemption. It may not be if your tenants are likely not to be registered and thus unable to recover VAT, and if construction services are supplied by unregistered contractors.

Incidentally, pre-registration input VAT can be recovered provided various conditions are satisfied.

taxadvice at mynow.co.uk