VAT SIPP and Commercial Rental

by **tony1** on Thu Oct 06, 2011 11:01 pm

My business is VAT Exempt.

I have created a SIPP which is about to purchase a Commercial Building for which "no option to tax has been made".

This makes the purchase easy with no VAT etc.

However we plan to spend a significant amount, via the SIPP, to add another floor etc.

Can we register the SIPP for VAT to reclaim the VAT on the work done, but yet avoid the "option to tax" teh building.

Hence avoiding VAT on the future rental

is this allowed/possible ? Tony

by **Kitty Kat** on Fri Oct 07, 2011 10:06 am

I can't comment on the SIPP aspect, but in order to be able to reclaim VAT on repairs etc... you would need to make a taxable supply in respect of the building. In your case you would need to charge VAT on the rents, and you can only do this if you opt the building.

But hang around for a second opinion, perhaps there is an angle I don't see

by **spidersong** on Fri Oct 07, 2011 10:08 am

In short - No.

VAT registration is based on the company making taxable supplies, if you're not making taxable supplies i.e. exempt rental only, then you wont be able to register.

If the cost of works is under £250k and the annual income will be less than £73k then it may be possible to opt, register for a short time, recover VAT, then deregister. If the building didn't fall under the Capital Goods Scheme (the £250k test), and no VAT was charged/recovered on the purchase of the building then there's no VAT to be paid in relation to retained assets on deregistration, but I haven't looked into the consequences of doing sub-capital goods scheme work on such assets and then deregistering though so it may not be feasible depending on the case law around on this. Even if it was feasible however this would still leave a valid option in place and any future disposal would mean a need to reregister and charge VAT, and if annual rental levels went over the registration threshold you'd need to reregister as well.

VAT and property is a complex area and one that HMRC are always keen to counter avoidance in, so you'd need to go and get paid for advice if you were heading down this route. You'd also need to consider the commercial implications, i.e. will the tenants be able to recover VAT on rental charges, if so what will the effects/perception of dipping in and out of charging do to this etc.