Sluggish Property Market - A temporary solution for house builders
Many building firms are now holding completed residential propertywhich is proving difficult to sell in the current property market. Onesolution is to let out this property for a short period in theexpectation that property prices will recover.
Ordinarily most of the VAT paid on construction costs isrecoverable. Unfortunately rents received from the letting ofresidential property are an exempt supply for VAT purposes. Accordinglya builder who both constructs and lets residential property isconsidered to be a "Partially Exempt" trader. Potentially a proportionof the VAT recovered on the construction work may have to be paid back!
The builder may have to:
* adjust the VAT recovered on his submitted VAT returns
* restrict the VAT to be recovered on current and future VAT returns
* or do both
Fortunately there is an escape route! If the amount of input taxwhich can be attributed to the exempt rental income is below a defined"de minimis" amount, no adjustment to past or future returns isrequired - VAT input tax can be recovered in full.
Provided the exempt input tax is below:
* £625 per month, on average, up to £7,500 per year; and
* is not more than half of total input tax ,
then the exempt input tax is de minimis and recoverable in full.