Tag: Residential Property

Is there a way that Buy to Let Landlords can reclaim VAT? possibly!

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Residential letting of property is exempt from VAT, so can’t charge VAT on the Rent.

The VAT rules say, if you only sell or otherwise supply goods or services that are exempt from VAT then yours is an exempt business and:

  • you cannot register for VAT
  • you cannot recover any VAT you incur on your purchases or expenses

However, if an Individual (Sole Trader), Partnership or Company has other vatable supplies, it could register for VAT and be partly exempt.

Partly exempt business

Your business is partly exempt if your business has incurred VAT on purchases that relate to exempt supplies. This is known as exempt input tax.

Generally, you won’t be able to reclaim exempt input tax. However, provided the amount of exempt input tax is below a certain amount, it can be recovered in full.

Non-business use in a partly exempt business

You can’t reclaim VAT you pay on goods and services that aren’t for business purposes. If your business is partly exempt and you buy goods or services that you use partly for business and partly for non-business purposes you must split the VAT accordingly. You then use your partial exemption method to work out how much of the business VAT you can reclaim.

Keeping records if your business is partly exempt

If you make both taxable and exempt supplies, you must keep a separate record of your exempt sales and details of how you’ve worked out how much VAT to reclaim.

De Minimis Limits

To stay below the de minimis limits, the following two conditions must both be met:

  • the input VAT attributed to exempt supplies must not exceed £1,875 for the quarter (£625 for a monthly return and £7,500 for an annual calculation); and
  • the input VAT attributed to exempt supplies must not exceed 50% of the total input VAT incurred in that quarter.

Effectively, this allows up to £7,500 of input VAT, relating to exempt supplies which would not otherwise be recoverable, to be recovered each year by a partially exempt business.

Vatable Business Activity

You could

  1. Provide Freelance Services
  2. Rent out vatable commercial property
  3. Let property as holiday accomodation
  4. Or provide other business services

Generally, my recommendation would be to keep your business activities in separate businesses so you need to be careful not to focus on a small VAT saving for the sake of the overall business structure.

 

steve@bicknells.net

More Tax on Companies owning High Value Residential Property

Contemporary house with pool

Most residential properties (dwellings) are owned directly by individuals. But in some cases a dwelling may be owned by a company, a partnership with a corporate member or other collective investment vehicle. In these circumstances the dwelling is said to be ‘enveloped’ because the ownership sits within a corporate ‘wrapper’ or ‘envelope’.

ATED is a tax payable by companies on high value residential property (a dwelling). It came into effect from 1 April 2013 and is payable each year.

Budget 2014 announced a reduction in the threshold from £2 million to £500,000 to be introduced over 2 years. From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. From 1 April 2016 a further new band will come into effect for properties with a value greater than £500,000 but not more than £1 million with an annual charge of £3,500.

Chargeable amounts for chargeable period 1 April 2014 to 31 March 2015

Property value Annual chargeable amount 2014 to 15
More than £2 million but not more than £5 million £15,400
More than £5 million but not more than £10 million £35,900
More than £10 million but not more than £20 million £71,850
More than £20 million £143,750

 

There are reliefs that might lead to you not having to pay any ATED. You can only claim these by completing and sending an ATED return.

A dwelling might get relief from ATED if it is:

  • let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • open to the public for at least 28 days per annum, if part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property
  • part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • part of a property developers trade where the dwelling is acquired as part of a property development business the property was purchased with the intention to re-develop and sell it on and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
  • for the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10%, the employee’s duties must not include services for any present or future occupation of the property by someone connected with the company, the relief is also available where a partner in a partnership does not have an interest of more than 10% in the partnership
  • a farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner
  • a dwelling acquired by a financial institution in the course of lending
  • owned by a provider of social housing

Alternatively in some cases it might be better to own the property as an individual or jointly with other individuals.

Joint tenants

As joint tenants (sometimes called ‘beneficial joint tenants’):

  • you have equal rights to the whole property
  • the property automatically goes to the other owners if you die
  • you can’t pass on your ownership of the property in your will
  • you can only sell or remortgage the property with the other owners’ agreement

Tenants in common

As tenants in common:

  • you can own different shares of the property
  • you can pass on your share of the property in your will
  • you can stop one owner from selling or remortgaging the property without the other owners’ agreement

 

The main source for this blog was HMRC

 

steve@bicknells.net

Overseas property investors – are you ready for CGT in 2015

Taxes

In the Autumn Statement 2013 it was announced that a CGT charge will be introduced from April 2015 on ‘future’ capital gains made by non-UK residents disposing of UK residential property. George Osborne said…

“Britain is an open country that welcomes investment from all over the world, including investment in our residential property”

“But it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not. That is unfair.”

UK Residents typically pay capital gains tax at 28% on any profit from selling property that is not considered their primary residence.

 

 Reuters reported in Dec 2013…

Property lawyers and estate agents said foreign owners would be relieved the tax will not apply to historic gains before 2015. But they cautioned that the overall impact could be marginal as many foreign investors see London property as a safe and profitable place to park capital.

“Tax is not the primary driver for the majority of international buyers of residential property in London,” Knight Frank’s head of global research, Liam Bailey, said.

“It is important to note that the change to CGT rules brings the UK in line with other key investor markets, such as New York and Paris, where equivalent taxes can approach 35-50 percent depending on the owner’s residency status.”

It was not immediately clear how the tax would be collected and how it would apply if foreign owners used a domestic company to purchase property.

When a company disposes of an asset and makes a capital gain, as the main rate of corporation tax in 2014 is 21% (20% small profits rate) there could be a future tax saving opportunity for overseas investors to transfer property to limited companies.

There are other tax implications for example ATED (Annual Tax on Enveloped Dwellings) and SDLT (Stamp Duty Land Tax) but now could be a good time to consider your options.

steve@bicknells.net