VAT is another essential tax consideration in property transactions. The application of VAT depends on the type of property and the nature of the transaction.
Generally, the sale or rent of residential property is exempt from VAT. However, some conversions of residential property may be eligible for reduced-rate VAT, such as converting a non-residential property into a residential.
Commercial property transactions can be more complex. Generally, commercial property rent is exempt from VAT, but the landlord can choose to charge VAT (known as ‘opting to tax’). The sale of a commercial property is usually exempt, unless the owner has ‘opted to tax’. We can provide guidance on the implications and process of ‘opting to tax’.
The first sale of a newly built residential property is zero-rated, meaning VAT is charged at 0%. This allows developers to reclaim the VAT they have paid on their costs.
Major renovations on residential properties that have been empty for two years or more are also zero-rated, and conversions between different types of premises can sometimes attract a reduced rate of 5%.
If the property is used for holiday lets, it is treated as a business service and standard VAT rates apply, subject to the VAT registration threshold.
Remember that VAT will generally be charged on professional services connected with your property transaction, such as estate agent fees or solicitor charges.
The Tour Operators’ Margin Scheme (TOMS) is a special VAT scheme applicable to businesses that buy-in and re-sell travel, accommodation, and certain other services as principal or undisclosed agent (i.e., the customer regards the seller as the supplier, with no knowledge of the actual principal). It is primarily designed for travel agents and tour operators but can also apply to other businesses that make supplies of travel services, such as Rent 2 Rent strategy. You can find more information on VAT HERE.
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