VAT on holiday lets?

[Anonymous]

I have a property which I have owned for about 10 years, initially it was used as an office and I had an option to tax on the property. I sold the business that was run from the office 2 years ago and converted the property to residential use. I have been using this as a private residence and second home for the last year and am now selling it. I have a buyer who wishes to use the property for holiday letting purposes and intends to lease the property from me to do this for 6 months on a commercial lease while he raises the finance.

I have spoken to the VAT office with the intention to have the option to tax disapplied and they insisted that this would automatically be the case as it was now residential, I am concerned that a sale or rental as a holiday let would revert the usage to commercial although technically it is still a residence and that it will then be liable to VAT on the sale or on the rental.

Can anybody help to put my mind at rest??

[Marie Stein]

Hi Tricia

I’m a bit confused by your question because you say that the property was originally used as an office and “I had an option to tax on the property”. It’s not clear whether you mean that VAT was charged when you purchased the property; or whether you made an option to tax on the property yourself.

Furthermore, it’s not clear why you would have needed to make an option to tax on the property unless you were letting it yourself and were concerned about recovering VAT on initial purchase or any cost incurred at the time. And, the option to tax does not apply to dwellings. It doesn’t matter what the dwellings being used for; the simple fact is that if the property is a dwelling then any option to tax on the property can’t apply. So even if you’ve made an option to tax, the option won’t apply.

So how do you know whether or not the property is a dwelling? Well in simple terms, the property is a dwelling if it is self-contained living accommodation. There are specific definitions for VAT purposes; see the guidance given in VAT notice 708, section 14 http://tinyurl.com/d4ujj74. As you’ll see, this applies to most houses, flats and any other properties that fulfil the requirements of self-contained living accommodation. I assume that for Council tax purposes, the property is regarded as a dwelling; albeit that there has been some or business use of the property.

So when it comes to releasing the property or selling the freehold of the property, if it falls within the definition of self-contained living accommodation, then the option to tax won’t normally apply regardless of how the tenant/purchaser intends to use the property.

Of course, if you carried out any work to the property during your period of ownership which means that it’s no longer a dwelling within these definitions, then the option to tax may apply. Unfortunately that’s not the sort of issue I can go into in any detail here on the forum, and in any event it sounds as though the VAT office are happy that the option to tax won’t apply in your case. However, if you are in any doubt, I would suggest that you write to the VAT office quoting your VAT registration number and giving them full details so that you get from them a proper written reply confirming the advice that they have given you verbally.

However, if I was giving you formal advice, I would want to know about the circumstances relating to your own option to tax before I would formally confirm that the option to tax won’t apply to the sale or lease. I appreciate that the cost of any kind of professional advice may be prohibitive for you in this situation, so in that case I’d strongly recommend that you get a written ruling from the VAT office.

I hope this helps but VAT and propertyrules are very complicated. Even if something seems to be relatively straightforward, I strongly recommend taking professional advice or at the very least ensuring that the advice you’ve received from the VAT office is in writing so that it can be relied upon should any issues arise in the future.

Marie

[Author]

Posts