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Where Taxpayers and Advisers Meet

LTD renovation

ltd101
Posts:47
Joined:Sat Feb 16, 2013 9:54 am
LTD renovation

Postby ltd101 » Sat Jan 31, 2015 5:30 pm

LTD property investment company purchased an end of terrace residential probate property in 2013 for £145k. The property has been let out for just under two years & does need some updating.

Planning permission has just be granted for a very large refurbishment project that would increase the size of the property substantially. This would include a loft conversion, bringing the property out to the back by 3.5metres & bringing the property out to the perimeter of the pavement.

The LTD does have some retained profits but I am also doing some numbers on the injection I will need to provide which is most likely to come from the DLA. In this context I am trying to understand the tax implications of such a large investment. Some of these improvements are certainty capital in nature eg Loft, but i wondered if for example repainting the existing rooms after the works had been completed would be regarded as revenue in nature?

Similarly, I dont think as an investment co I would be able to claim back VAT for the works - is this correct?

Also I have been informed that if the front of the house comes down in normal resi circumstances then the rebuild is VAT free, is this also applicable within an LTD?

If I increase the number of dwellings does this impact the tax implications for the project?

best regards

Lambs
Posts:1558
Joined:Wed Aug 06, 2008 3:15 pm

Re: LTD renovation

Postby Lambs » Sun Feb 01, 2015 6:32 pm

L,

VAT doesn't "care" about whether or not the activity is investment or trading, per se: an economic activity is an economic activity. Likewise, a business entity is a business entity, so the same VAT rules apply to a company as a business entity, as they do to an individual conducting an economic activity. (Usually). Having said that, first supply of a new-build resi would potentially be zero-rated, rather than exempt, the former allowing you to register and re-claim VAT. There are VAT specialists on the forum who would be able to guide you through how much of a pre-existing building has to be dropped (demolished) in order for there to be a new-build.

(But bear in mind that a supply of letting - even of a new build - would still be exempt: you have to sell or +21-year lease to get the 0% route so if you are intending to continue to let the property in the company after refurbishment, then VAT reclaims may not be available to you).

Yes, changing the number of overall dwellings up or down may result in access to a reduced rate of VAT of 5% for construction services - which may include the materials used by the builder to provide those services. Creating an entirely new dwelling either from scratch or within an extension may secure access to 0% for construction services.

If you spend £100k on improving a property, then decorating afterwards would normally also be a capital improvement. It could perhaps be argued that decorating unaffected rooms is no more than ordinary maintenance - but it may not be worth splitting hairs.

Beware the Construction Industry Scheme. HMRC may argue that a project of this scope will bring you within the scope of CIS. Which is frankly a total and utter pain. But on my reading of the legislation, they are probably right.

Lambs

section 44
Posts:4467
Joined:Thu Oct 30, 2008 12:47 pm

Re: LTD renovation

Postby section 44 » Wed Feb 18, 2015 6:31 pm

VAT doesn't "care" about whether or not the activity is investment or trading, per se: an economic activity is an economic activity. Likewise, a business entity is a business entity, so the same VAT rules apply to a company as a business entity, as they do to an individual conducting an economic activity. (Usually). Having said that, first supply of a new-build resi would potentially be zero-rated, rather than exempt, the former allowing you to register and re-claim VAT. There are VAT specialists on the forum who would be able to guide you through how much of a pre-existing building has to be dropped (demolished) in order for there to be a new-build.
As described, this wouldn't be the construction of a dwelling but rather work to an existing dwelling. Accordingly zero-rating would not be in point and there would be an irrecoverable VAT cost on the works.

Lambs
Posts:1558
Joined:Wed Aug 06, 2008 3:15 pm

Re: LTD renovation

Postby Lambs » Fri Feb 20, 2015 1:56 am

S,

I am not sure I concur.

What if the extension(s) were to envelope a new dwelling? The querist specifically mentioned a change in the number of dwellings.

Regards,

Lambs

section 44
Posts:4467
Joined:Thu Oct 30, 2008 12:47 pm

Re: LTD renovation

Postby section 44 » Fri Feb 20, 2015 10:41 am

The querist specifically mentioned a change in the number of dwellings.
what, you mean this?

[If I increase the number of dwellings does this impact the tax implications for the project[/quote]

robbob
Posts:3100
Joined:Wed Aug 06, 2008 4:01 pm

Re: LTD renovation

Postby robbob » Sat Feb 21, 2015 11:22 am

Ref new dwellinghousePresumably this is the possible scenario as described by hmrc where you would both agree that zero rating is most likely to apply based on what the OP advised.
3.2.4 Enlargements and extensions that create additional dwellings
You can zero-rate the enlargement of, or extension to, an existing building to the extent that the extension or enlargement contains an additional dwelling provided:

the new dwelling is wholly within the enlargement or extension, and
the dwelling is ‘designed as a dwelling’ - see paragraph 14.2.
So, for example, a new eligible flat built on top of an existing building can be zero-rated.

If the new dwelling is partly or wholly contained within the existing building, you cannot zero-rate your work under the rules in this section. You may, however, be able to reduced-rate your charge as a ‘changed number of dwellings conversion’ - the rules are explained in section 7. Also, the sale or long lease of the new dwelling may be able to be zero-rated as a converted non-residential building - the rules are explained in section 5.
https://www.gov.uk/government/publicati ... -buildings

Presuming that only the following work is being done (whilst at the same time changing the number of dwellings) as listed below - it doesn't sound like zero rating would apply here but its useful for the OP to be aware of the specific possibilities mentioned above.
This would include a loft conversion, bringing the property out to the back by 3.5metres & bringing the property out to the perimeter of the pavement.


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