VAT on Residential Rental Income.

[Johnny Be Good]

We are a VAT registered company selling goods online.
We also own 3 residential properties for which we are receiving Rental income via an estate agent.

1. My accountant told me that all Rental Income from residential properties are Zero Rated for VAT( or exempt not sure ) Which one?
Is this correct?

2. Can I claim the VAT back on the estate agent fees?

For example for one property the agency charges the tenant £850 pcm.
But they charge us £120.20 fees which include £20.03 VAT

Can I claim that £20.03 VAT back through the VAT return of the business?

 

[numbersrule]

Hi Johnny be Good

To answer your question, it is essential to be clear about who owns the 3 residential properties. You say you are a VAT registered company but is your 'company' a sole trader / partnership? And who do you mean by 'we' when you say 'we own 3 residential properties?

For example, if you mean you and your partner own the 3 properties, are you and your partner the only partners in the business?

I look forward to hearing further.

 

[Gyumri]

Assuming that the company is incorporated, if the rental income was the company's only trade then you wouldn't be entitled to recover the input vat on any purchases of products or services unless you "opt to tax" ie inform hmrc that you will be charging vat on your rental income which is otherwise exempt.

I would also say no to your second question because at present your agent's charges are not for the purpose or linked to the company's online sales - but you would be able to claim input vat on other purchases which can be linked to the output sales.

Others may have a different view!

 

[TheSkyisGray]

Possibly. You will need to do partial exemption calculations so look it up.

I don’t know why the above poster is talking about an option to tax on a residential property.

It’s unusual to have all this in one company so go back to the advice you received when you set it up.

 

[NicoJ]

Residential rent is exempt from VAT (opt to tax relates only to commercial property) - as the inputs relate directly to the exempt supply you can't reclaim input VAT on the estate agents fee.

EDIT - subject to the partial exemption rules as correctly noted by @TheSkyisGray

 

[Gyumri]

The above posters are correct so I stand corrected - the option excludes residential properties.

Opting to tax land and buildings (VAT Notice 742A)

What happens when you opt to tax (charge VAT on) land and buildings, when you need permission and when to tell HMRC about your decision.

www.gov.uk

There may be an annual tax on enveloped properties which the company will need to pay:

Annual Tax on Enveloped Dwellings

Find out about Annual Tax on Enveloped Dwellings (ATED), what you need to pay and how to appoint an agent or adviser to act on your behalf.

www.gov.uk

 

[nelioneil]

Residential income is exempt.

If this is the only supply, then the company cannot register for vat.

If there are other supplies where vat is charged, need to look up the partial exemption rules.

 

[Johnny Be Good]

My company is a Limited company that sells goods online and is VAT registered. It is also the same company that owns the residential properties.

I had some tax advice and they told me that I really have to separate the investment( Residential Properties ) to the rest of the company , usually by having a holding company etc as the current structure does not benefit me if I want to sell either the investment or the company separately.

Also the tax on enveloped properties is really for properties that are valued for more than £500K each so I think all of them are below that amount. Just as a side note, the tax in this country i mean!, you even get taxed for breathing air!

 

[WaveJumper]

I am guessing you never took proper advice (tax) when first purchasing the property from what you said above this is exactly what I would have done ie separate holding or company altogether. I think your only option now is to sit down either your own accountant or another who understands the issues of holding property in a ltd and has a clear picture of your complete tax affairs.

Yes agree we are pretty well taxed to the hilt in this country especially if on PYAE however being self-employed or owning a LTD if (and this is in my view where many fall down) you seek the advice of a good accountant they will save you a fortune. And in my view any good business would seek advice looking ahead at future investments and discussing implications with their accountant and tax adviser, trying to do this after the deed is done can prove a very costly mistake.

Armed with the advice from you new tax adviser how have they suggested you rectify the situation