Vat for Property Dev Co on Second Hand House

bigmanhole

Hi Guys,


Hoping for any guidance you might have on this matter.

I was reviewing the implications of the Vat rules on our proposed new venture. We are 2 people who set up a company to buy houses, renovate and then sell for a profit. For all intents and purposes it falls under property development.

This means that my understanding is as follows in relation to whether or not we have to charge vat on the sale:

1. The 5 and 2 year rule doesn't apply as the house being provided for sale is by a builder\developer. (http://www.revenue.ie/en/tax/vat/leaflets/property-guide/introduction.html)

(Generally, all sales of 'old' property (those outside the period when considered 'new') are exempt from VAT. The notable exception is the sale of residential properties by a developer/builder where the two and five-year rules do not apply. In such cases, the sale by the developer/builder is always taxable. (Supply of Property - New System)

2. However, for a supply of property to be subject to vat it must

· be developed
· be supplied in the course of a business

Being developed means materially altering the building or spending in excess of 25% of the purchase price renovating\extending the property. Anything less than 25% is considered minor works.

3. Thus in our case under point 1 above we fall into the vat bracket. However as we are not developing the property, i.e. spending in excess of €57,500 (25% of €230,000 the purchase price), I would consider the sale of the property tax exempt. Is this the case - it's a bit confusing and this issue is key?

4. The 25% rule would seem reasonable as if you build a brand new house and sell it you must pay vat. To avoid this you could buy a crappy second hand house and spend millions on it and sell it with no vat if the 25% rule didn't apply (effectively this is a new house but could be classed as a second hand house).

5. Final question then is we as a business are producing a good for sale (i.e. a house). Are we required to pay capital gains tax on the disposal of the house. We didn't acquire the house as a fixed asset as such.

Thanks

barneystinson

There is a reason why people have built careers advising on VAT on property; this isn't one for advise from randomers on the Internet. As you say it's critical, so go and get professional advice.

bigmanhole

Thanks for helpful reply - needless to say I am getting professional advice but as its a complicated\unusual situation I was wondering had anyone direct experience of this and could give me a steer in the short term.

Ill update once Accountant reverts

dbran

Questions on property threads are beyond the scope of this forum. If you are paying a professional tax advisor I suggest that you should put your trust in them rather then risk getting incorrect/inaccurate information from the unknown.

Vat on property is a high risk area even for professionals and you risk having to write a big cheque to revenue by not obtaining proper advice or engaging in a DIY type operation.

Best regards

dbran