The developer had to pay VAT on buying the office property which made the project costs unworkable but we were able to make the VAT costs disappear.
A large office block conversion project in Nottingham was being bought to create flats for investment letting. The vendor was proposing to charge 20% VAT on the sale price however as our client, the purchaser, was going to let (not sell) the new flats, they could not reclaim any VAT charged on buying the building or doing the conversion. Result was their costs were increased dramatically. We were asked what could we do to help?
We explored blocking the VAT charge on the property sale which should have been possible except the seller refused to go ahead unless they were charging VAT. This was because they had their own VAT costs to protect. By introducing an interim company to buy, develop and then sell the property to a separate but associated landlord company we were able to secure full VAT recovery on all costs including purchase, conversion and disposal. This could have saved incurring a VAT cost but created an extra cost by way of SDLT but forming a corporate group gave a good answer on this as well.
What do we do?
Our role is to help you understand how the VAT exemption, 0% & 5% relief rules work for a particular situation and bear the lowest possible VAT costs. There are all sorts of VAT reliefs running through most sectors and you probably already know the rules relating to the property sector are both complicated and frequently misunderstood. So these grey areas are where we work and what we can do to help to iradicate.
If you’re ever not sure about VAT related then please give us a call. Remember sooner is always better.