VAT basics for property investors
As a leading property tax expert, I advise my clients that in general terms VAT is charged on goods and services supplied from a UK entity to another. That means that you will need to add on 20% VAT to your sales price.
However, how do property investors figure in this VAT realm?
HMRC have helpfully provided a list of services that are either VAT exempt, 0%, or 5% VAT rates, which I’ve condensed below to make it easier for property investors to read:
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VAT exempt activities for property investors
- Rents applicable to residential properties
- Garages or parking spaces let together with dwellings (under shorthold tenancy agreements) for permanent residential use
- Parking – grant, or licence, to occupy land on which incidental parking takes place
- Property, land and buildings – grant, or licence, to occupy land or buildings
You should note that residential property investments that are rented to tenants are never subject to VAT. This means that you do not charge tenants VAT, and you cannot claim back VAT – if you’re unsure on this point, please get in touch with me via the contact form at the end of this blog post.
5% VAT rates for property investors
- Converting existing premises by increasing the number of dwellings within the building
- Renovating a dwelling that has been empty for at least two years
In regards to VAT exempt and 5% VAT rates, property investors are unable to reclaim any VAT that they’ve paid. My team of property tax specialists can advise you further on this.
We have written another article here on this subject.
0% VAT rates for property investors
- Substantial reconstructions to protected buildings that are buildings used as a dwelling, for a relevant residential purpose or for a relevant charitable purpose
- Construction and first freehold or long leasehold sale of a new building for a relevant residential or charitable purpose
- First freehold or long leasehold sale of a commercial building converted into a dwelling or dwellings
- Sale or long lease of a new dwelling with garage or parking space
In regards to 0% VAT rates, property investors can claim back any VAT that they have paid. This is usually the case when property developers build new houses or converts commercial properties into residential use for the very first time. If unsure how this might affect you, get in touch with me to discuss further.
We have also written a more detailed article all about investing in commercial properties. Be sure to take a read.
Property investment activities where VAT applies
Many property investors have multiple streams of income, and it’s important to identify the types of income that you will need to charge VAT once your taxable turnover reaches £83,000 per HMRC’s guidelines.
- Property management/letting businesses
- Sourcing of properties
- Project management
- Consultancy
- Property maintenance
Once you have generated sufficient income to be VAT registered, it’s advisable to complete the HMRC form VAT1.
I can assist you further on this, as well as providing a team of property tax experts to help you. To find out more about how my team of expert property tax accountants can advise further on VAT, please feel free to get in touch here.
If you want to know more then please read our “buy to let tax tips for UK landlords” article
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