Len Dean
VAT Partner at Bishop Fleming

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Len leads the VAT team and brings a wealth of experience and a practical approach to provide user-friendly VAT advice and get the best solutions for his clients.
Len helps his clients navigate UK and global VAT systems to ensure they know what to expect, get it right, and above all know they are in good hands so they can focus on their priorities and achieve their goals.

Over many years’ experience, first as a VAT inspector at HMRC, and leading VAT teams at large accounting firms in Scotland and the South West, he has advised clients in most sectors, with specialisms including Education, particularly FE Colleges, International Trade, Cross-border transactions, Group Structures, Property, Partial Exemption, and of course dealing with HMRC.

Understanding VAT implications on UK residential property

November 14, 2023

Understanding the VAT implications on UK residential property and the impact of interim rental for new residential properties, including strategies for VAT recovery, HMRC’s adjustment policy, and alternative approaches, is essential for investors with portfolios in the UK.

Recovering VAT on UK residential property development

When housing developers construct or convert properties for sale, they can generally recover VAT incurred on development costs. This includes VAT on land or property purchases and associated legal and professional fees, which can represent significant amounts.

VAT implications on UK residential properties carrying out interim rental

Interim rental of these properties, prior to sale, can change their VAT status from zero-rated sales to exempt rentals. This shift can potentially lead to a clawback of recovered VAT to HM Revenue and Customs (HMRC).

HMRC’s Fair Adjustment Policy

In response to market slowdowns, like in 2008, HMRC introduced a policy allowing a fair and reasonable VAT adjustment. This policy, aimed at reflecting both the temporary exempt use and intended sale, can lead to reduced VAT clawbacks or no adjustment, depending on specific factors such as the rental period and projected sales value.

Alternative strategies: Sales to group companies

Another strategy is selling new residential properties to a group company before renting them out. This approach can secure VAT recovery on development costs by ensuring a zero-rated first sale, though it must be weighed against other commercial, legal, and tax considerations, including Stamp Duty Land Tax (SDLT) and Corporation Tax.

If you have questions about your UK property portfolio VAT obligations, please get in touch with one of our UK Indirect Tax specialists.