VAT Registration – Selling land to housebuilders
VAT when selling land to a housebuilder
A question that sometimes gets asked, is whether VAT can be recovered on costs incurred when selling land to a housebuilder? The land may be part of a garden or several fields. In some cases the costs may be incurred several years before the sale takes place, for example, professional fees involved in applying for and obtaining planning permission. The short answer is yes, VAT can be recovered, subject to appropriate action being taken. The main action that needs to be taken is to register for VAT and to opt to tax the land. These concepts are discussed further below.
VAT registration will be necessary unless the landowner is already registered for VAT.
Advice should be taken regarding the timing of the VAT registration. For example, in some cases a land promoter will incur all or most of the initial costs and then charge a fee to the landowner at the time of the sale. In other cases the landowner may incur costs several years before the sale takes place, for example, professional fees when applying for planning permission.
If the land is owned jointly, for example by spouses, or the ownership is changed prior to the sale, for example for capital gains tax and/or inheritance tax planning purposes; advice should be taken regarding the impact on VAT registration.
Opting to tax the land
In most cases the sale of land to a housebuilder is exempt from VAT unless the vendor has opted to tax it. The main effect of opting to tax is that the landowner charges VAT on the sale and recovers VAT on the costs, providing there is an appropriate VAT registration in place. Opting to tax is a two stage process and advice should be taken to ensure the appropriate notification is made to HM Revenue & Customs on time.
Housebuilders are generally familiar with the concept of opting to tax and usually recover the VAT they are charged when buying land to build on.
The above is a brief overview of some general VAT planning points to consider when selling land to a housebuilder. There are other points to consider if there are any buildings included in the sale to the housebuilder.
There are a number of capital gains tax, inheritance tax, and VAT planning opportunities available. To take full advantage of the opportunities, specific advice should be taken well in advance of the sale taking place.
For information and advice please contact the Garbutt + Elliott tax team at firstname.lastname@example.org – 01904 464 100 or fill out our contact form below: