Our website uses cookies to enhance the visitor experience (what's a cookieCookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.). Are you happy for us to use cookies during your visits?
Please note: continuing without making a choice equates to giving us your consent, which you can withdraw at any time via our cookies policy page.

VAT Problem for House Builders

Newsletter issue - November 08.

In the present climate where house builders are stuck with properties they can't sell, they may be tempted to rent them out.

However, when building firms rent out newly built homes instead of selling them, this can cause VAT problems. This is because new residential properties are zero rated for VAT and letting residential property is exempt from VAT. The amount of VAT charged to the buyer in both cases is the same: nil, but the seller's ability to reclaim VAT on its costs is not. Briefly you can reclaim VAT on costs associated with something you sell which carries zero-rate VAT, but you can't reclaim the VAT when the thing you sell is exempt from VAT.

Where your business has only a small proportion of VAT exempt sales, you may be able to ignore the ban on reclaiming VAT, if the VAT relating to the exempt sales is less than both:

  • £7,500 per year; and
  • 50% of the business's VAT on purchases for the year

Working out how much of the VAT you paid relates to the new properties which are let is not straight-forward. The total amount of VAT on the purchases that relate to those buildings must be spread over 10 years. If the properties are let for say 2 years before they are sold then 2/10ths of the VAT on the costs is regarded as relating to exempt sales. If this total is within the limits shown above, you have no VAT problem.

However, in real life the calculations are rarely that simple. If you are forced to let newly-built residential property please ask us to check your VAT position.

Newsletter SubscriptionPlease enter your details

Book a Free, No Obligation Consultation

Take advantage of a free consultation to see how you can benefit from using Stanhope accountancy and advisory and find out the best way to deal with your tax, accounting and how to minimise your tax liabilities. Book now >

Get a Fixed Quote

We believe you should always be in control of your finances. For this reason we can offer many of our services on a fixed fee basis on agreed services >

Profitability Strategies

We can help you develop strategies to help your business grow without increasing costs specialized tax incentives to produce multiple benefits and help you increase your profit >

Your Business

Expert tax planning advice any size business tailored to you >