In the current financial climate many house builders find themselves unable to sell new build properties and are opting to rent them out instead. This has major VAT implications. VAT on related development costs (such as land, professional fees, materials etc) has usually been reclaimed in expectation of a zero-rated sale of a new dwelling; however, the letting of the properties generates exempt income and it is necessary to consider whether VAT should be repaid to HMRC.
HMRC have issued Revenue and Customs Brief, 44/08 and an associated information sheet, 07/08, which provides guidance, including worked examples, on the VAT implications when house builders decide to temporarily let dwellings before selling them. The key points HMRC make in the Brief are:
- if you temporarily let a dwelling before selling it, you may affect the VAT you can recover on your costs;
- many house builders who temporarily let a dwelling will not be affected but they need to check this to avoid making VAT mistakes;
- there is an easy way to check if you are affected by applying what HMRC describe as a ‘simple check for deminimus’.
The guidance does not cover the Capital Goods Scheme as it states that new houses will not normally be Capital Items. However it is important to note that the Capital Goods Scheme is likely to apply to many mixed use buildings, such as apartments built above commercial property. Taking specialist VAT advice would be sensible if you are dealing with this situation.
If, on reading the guidance, you consider that a repayment of VAT to HMRC is required please contact us before making any disclosure as we may be able to help you reduce or avoid any liability.
