Charging VAT on Commercial Rent

[claire parker]

I own a small freehold office which I am initially going to rent out on a renewable short term lease arrangement with a view to possibly selling the property to the tenant in due course.

I am VAT registered.

Having read the VAT booklets I am uncertain as to whether or not I should 'opt in' so that I have to charge the tenant VAT or not.

I cannot see any disadvanges to 'opting in' but it would appear that if I don't I will not be able to claim back VAT on any repairs or bills which are incurred.

It looks as though once you have 'opted in' you cannot 'opt out' if that is the case I need to do my 'homework' now.

Also if I 'opt in' would I have to charge VAT on the sale price of the property.

TIA

Claire

[Editor]

Never rely on selling to tenants - it rarely happens in my experience. Remember, if you let within the Act there's no guarantee of getting vacant possession again, so be prepared to sell tenanted, or consider letting outside the Act.
As has been said on a previous post on VAT, it is a highly complex area and you should seek professional advice. See archive for previous post/s.
http://www.landlordzone.co.uk/forums/archive/index.php/t-1749.html
I would say generally, as you say, you need to consider the long-term implications and the fact that it's not possible, or at least not easy to reverse the decision.
A lot depends on the size/type of property and your likely tenants, and also who you may sell to as this will add VAT to any sale.
Opting-in allows you to claim VAT on repairs, but hopefully once let, your tenant should be paying for these if you can get a FRI agreement.
Not all tenants can reclaim VAT, for example insurance companies and I'm sure others, so it can be a disadvantage for some.
On balance my instinct is not to opt-in if it's a small property.

[claire parker]

Thank you for your swift reply.

The more I look at this matter, the more I realise I need Pro help.

The whole matter seems to be unnecessarily confusing.

claire

[Editor]

This is a very useful guide to VAT for property managers published by the Law Society and now listed on our books section:

Understanding VAT on Property (http://www.amazon.co.uk/exec/obidos/ASIN/1853288608/landlordzone-21)

This practical text is suitable for beginners with no prior knowledge of VAT, but it should also provide more experienced practitioners with an authoritative and up-to-date quick-reference guide. Readers should benefit from the author's day-to-day experience of advising on VAT, reflected in the uncomplicated style and layout of the book. Features of the book include: examples of how VAT applies in practice to specific property transactions.

[Tax Accountant]

You say that you are VAT registered. Assuming that your VAT registration will continue after the letting of your office, you may still be able to reclaim the 'Exempt VAT'' relating to your let property under the 'De-Minimus' rules, provided the Exempt VAT is within a certain figure which I believe is approximately £725 per month on average.

There must be an aweful number of VAT registered persons who are not aware of the ability to reclaim exempt VAT input on let properties (residential or commercial) within the De-minimus rules. Any such VAT can be reclaimed back-dated to previous 3 years.

Therefore, you may still be able to reclaim your let property VAT without waiving your exemption (correct term for opting in).

I would tend to retain the VAT exemption, ie not to opt-in, unless the amount of unclaimable VAT input is significant.

Does this help.

Ramnik