VAT on New Residential Development


VAT on New Residential Development

Postby flatdeveloper on Thu Sep 30, 2010 12:12 pm

Our Ltd Co has purchased a bare site with expired planning consent for a number of dwellings (previously an industrial site). We are incurring VAT on costs related to the purchase and for obtaining new planning consent. The Co is VAT registered. Our original intention was to develop the site and sell the finished dwellings. However, that may not now be the case and there are a number of options we are considering.

My understanding (from looking through previous discussions on this forum) is that:

1. If we develop the units and sell freeholds or on long leases then we can reclaim out input VAT and the sale of the dwellings will be zero-rated and no VAT will be clawed back.

2. If the develop the units and rent them out on short lets the the supplies will be exempt and we would need to repay any input VAT reclaimed.

3. If we sell the development land with residential planning consent then is that supply exempt or zero-rated? Can we reclaim input VAT on costs incurred to date (solicitors, architects, etc.)?

And finally, at what point does the "option to tax" come into this? Do we need to opt to tax in order to reclaim any of the input VAT in any of the above scenarios?

Thanks,

A flat developer.
flatdeveloper
 
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Joined: Thu Sep 30, 2010 12:01 pm

Re: VAT on New Residential Development

Postby Generix on Thu Sep 30, 2010 4:07 pm

flatdeveloper wrote:Our Ltd Co has purchased a bare site with expired planning consent for a number of dwellings (previously an industrial site). We are incurring VAT on costs related to the purchase and for obtaining new planning consent. The Co is VAT registered. Our original intention was to develop the site and sell the finished dwellings. However, that may not now be the case and there are a number of options we are considering.

My understanding (from looking through previous discussions on this forum) is that:

1. If we develop the units and sell freeholds or on long leases then we can reclaim out input VAT and the sale of the dwellings will be zero-rated and no VAT will be clawed back.

2. If the develop the units and rent them out on short lets the the supplies will be exempt and we would need to repay any input VAT reclaimed.

3. If we sell the development land with residential planning consent then is that supply exempt or zero-rated? Can we reclaim input VAT on costs incurred to date (solicitors, architects, etc.)?

And finally, at what point does the "option to tax" come into this? Do we need to opt to tax in order to reclaim any of the input VAT in any of the above scenarios?

Thanks,

A flat developer.


1 - correct
2 - correct - although if you rent for a short period then sell the freehold then you will be entitled to some recovery. If you rent indefinately then no recovery - a solution is to set up a second Ltd co as a rental co. (i.e. co1 develops and sells to co2 - co 1 recovers all input VAT based on zr sales to co2 - co2 will have irrecoverable VAT on their ongoing operations)
3 this isn't my area of expertise but I would suggest that this is a supply which would depend on the option to tax.

Option to tax only applies to sales of bare/commercial land - i.e. if you sold a residential prop or a new commercial (within 3 years of build) then incase of residential it would either be (for new) zero or for (old) exempt.

Basic liability for old commercial or bare land is that it is exempt, you can basically change this to standard rated by opting to tax.
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Generix
 
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Joined: Wed Aug 06, 2008 3:41 pm

Re: VAT on New Residential Development

Postby flatdeveloper on Thu Sep 30, 2010 4:32 pm

Generix,

Thanks for the response. So my endless perusing of HMRC notices is not completely wasted then.

It looks like I'll be back to studying Notice 742A in more detail to work out how best to deal with option 3.

Thanks,

A flat developer.
flatdeveloper
 
Posts: 2
Joined: Thu Sep 30, 2010 12:01 pm


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