Reducing the VAT cost for buy-to-let landlords
The basic position for those in the buy-to-let sector can sometimes be considered disadvantageous from a VAT perspective. Whilst letting residential property is exempt from VAT, the renovation or conversion of properties is subject to VAT. Essentially this means that you can’t register for VAT and therefore can’t recover any the VAT you are charged, although different rules apply to the letting of commercial property.
Property landlords therefore often resign themselves to suffering VAT at the standard rate of 20% on works to their property. However, there are a number of options available both to manage the VAT cost and for retrospective refunds.
Our VAT team explores some of these innovative solutions in this practical guide.
New builds and VAT relief – Residential property owners can obtain VAT relief through zero-rating when they construct a brand new residential property. Therefore, buy-to-let landlords who are thinking about renovating a residential property extensively should consider if it could be worth demolishing the existing building and rebuilding from scratch.
Renovation for a reduced VAT rate – In certain situations, residential landlords can benefit from a reduced VAT rate of 5% when they convert existing residential and commercial buildings into new residential dwellings. However, the rules can be complex especially where mixed-use buildings are involved. The advice of a professional VAT specialist at the outset of the renovation is recommended especially as it may be necessary to negotiate and come to an agreement with HMRC before construction commences.
VAT reliefs for disabled access and facilities – VAT relief is available on certain services including work that adapts a disabled person’s home. There are a range of services that are eligible for VAT relief through zero-rating including servicing, maintaining, installing and adapting equipment for the use of a disabled person. In addition, certain building alterations to a disabled person’s home and the hire of disability equipment can also qualify for zero-rating.
Design and build contracts – Landlords should consider using an inclusive design and build company when commencing a renovation project. Professional fees, including the services of an architect are not eligible for relief unless the service is supplied as part of an inclusive design and build contract.
VAT group registration – There can be a number of advantages to VAT group registration. It provides potential savings by generating additional taxable supplies within a group of two or more corporate bodies. Plus of course preparing a single VAT return for the entire group can be very attractive.
In short, there are structures and options for property owners to consider which can ensure that irrecoverable VAT costs are not incurred in the first instance, or increase the rate of overall VAT recovery. However, the rules can be complicated and it is essential that specialist professional advice is sought as mistakes often cannot be put right retrospectively.
For advice on this or indeed any other VAT related matter, please contact us.
This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.
The information was correct at time of publishing but may now be out of date.