New build to sell - VAT treatment

[markaellis]

Hi; new to the hub and my first post.

 

we are buying a plot of land to put a new house on; we will project manage only - not getting involved in the actual build. The hope is to then sell - at a profit.

 

Our understanding is that VAT reclaim is only for a self build you intend on living in - so our costs would increase substantially. First question is whether contractors would still zero rate their invoices - so it's not quite as bad as it could be?

 

but is there a better way to set up - ie start up a VAT registered Ltd co; in which case could we reclaim VAT and the end supply (sale of house) remains zero rated.

 

anyone with experience to suggest the optimal route please?

[ProDave]

I presume you will be placing contracts for various packages of work?

 

Providing each contract is "supply and fit" of a particular part of the build, it should come to you zero rated.

 

The VAT claim thing is for self builders who (not being VAT registered) cannot avoid paying VAT on materials they buy, so they claim back the VAT at the end.

 

If all you are doing is project managing, not building, you won't be buying any materials like that will you?

[Mike]

Sounds like you need to take professional advice. If you're developing for sale you'll be liable for either income tax & NI contributions, or corporation tax, depending on the way you do it, quite apart from the VAT issue...

[nod]

You would perhaps be better Striking deals for materials yourself and getting contractors to zero rate labour 

As pointed out they can zero rate both 

But for a one off build most will add a considerable mark up on material Especially if they are having to stand the vat each quarter 

[scottishjohn]

1 hour ago, markaellis said:

The hope is to then sell - at a profit.

so you need to live in it or put it in wifes name for a year --then any profit will not be liable to CGT

 

[nod]

7 minutes ago, scottishjohn said:

so you need to live in it or put it in wifes name for a year --then any profit will not be liable to CGT

 

It needs to be your main residence 

Counsul tax ALL utility’s in both your names 

We wanted to rent our home out rather than sell 

Our accountant advised against it Especially if we intended moving back 

Though once the new build is officially your main residence you can sell without Capital Gains almost immediately 

[markaellis]

thanks all for the comments to date; i agree entirely that i need professional advice. I am seeing a tax advisor tomorrow but the above helps me to structure the questions to ensure all are covered off.

 

i suspect that a Ltd co will be the end route but will comment later on the advice i receive; just not necessarily that easy as they are unlikely to be an expert in all areas - for example possibly needing to register for CIS.

[Temp]

Based on what you have said so far..

 

You would be liable for the CIL if it applies in your area. Only Self Builders are exempt.

 

You wouldn't be eligible for the Self Build VAT reclaim scheme, but any services should still be zero rated to you. Likewise any materials purchased by a contractor doing "supply and fit" should also be zero rated to you (but it can be hard to convince some trades that this is true as they have paid VAT on the materials). Only things you buy yourself would have VAT on them that wouldn't be reclaimable.  Some things like tool hire will also have VAT on them but that's not reclaimable by anyone.

 

The project maybe liable for Capital Gains Tax on any profit over your exemption. However if this project is your main source of income you might be liable for Income tax instead.

 

If selling within 10 years the buyer will expect a 10 year warrant. I don't know what hoops a Ltd Company has to go through to provide one. I doubt a Ltd Company can buy the same policies that a self builder can.

 

The optimal route would probably be to have a change of plan and decide to build a house for yourself to live in. You would potentially need to live there for at least three years to avoid the CIL. A shorter period to avoid CGT. What matters to HMRC are your intentions at the outset. See what your tax advisor says and then make a decision and ensure everything you do is consistent with that decision. eg Don't tell HMRC its a self build and at the same time apply for a business loan.

 

You should also work out if you can actually make any money building the house. We purchased our plot from a builder who was selling it because he didn't think he could make any more money by actually building the house. We got the PP revised and built something better. We have a great house but I don't think we made/saved any money.