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Sam
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Category: Tax
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This is a VAT question. My client owns a parcel of land, which

Resolved Question:

This is a VAT question.
My client owns a parcel of land, which has planning consent for a small commercial building from which he will operate a Dental Practice.
he has sold the land to a new company, owned by him, New Co will develop the new building. once completed New Co will rent the building to a separate Limited company which operates the dental practice.
is he able to claim back the VAT on the build.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your question - I am Sam and I am one of the UK tax experts here on just Answer.
Would the limited company be classed as a business in property development or just own this one build and collect rents on it ?
Thanks
Sam
Customer: replied 2 years ago.

hi Sam,

this is just a one off build, they will then collect rent from the dental practice which again is a Limited Company

Tony

Expert:  Sam replied 2 years ago.
Hi Tony
Thanks for your response
Whilst there is nothing wrong with the build (as a developer) being undertaken as a trade, limited companies cannot just then be left with just a rental income position, so I do urge you to look further into that aspect. Tis company would not fall into the remit of property development after the build is complete unless it also looks after and maintains the property - but I should stress with their being just one building - which happens to be trade from by the very same director of the limited company, you have bigger issues to worry about with HMRC than just the VAT
But in answer to your original question - whilst there is an issue of there being VAT suffered on the build, VAT can only be reclaimed if a taxable supply exists, which could be argued, that , if this limited company also provides maintenance services on the property and upkeep of the land in which the property is situated. The fact there is only one property and will remain only one, and the director of the limited company also is the one person renting the property - then this is a potentially unsafe position to place your client in, as and I do agree with your clients personal accountants but also because HMRC (both tax and VAT) will argue that once the build is complete there is no taxable supply and with just one property this is a case that will be argued on by HMRC should your client register for VAT and attempt to reclaim the VAT suffered on the build.
Even if you proceed then VAT has to be then also charged on the rental income (as you will then in essence have opted the building into VAT) they will also attract a VAT charge for any future sale.
This ALONG (as by itself its not an issue) with the fact the property will be rented by the same connected individual is a recipe for disaster, and will be refuted by HMRC.
I am sorry the news is not more favourable.
Thanks
Sam
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