Press Release
31 October 2008
HMRC VAT concession to housebuilders will still leave them facing significant costs
- Selling properties to letting subsidiaries not simple solution
- May give rise to stamp duty charges
A concession by HM Revenue & Customs to allow housebuilders to avoid having to repay VAT on newly built houses which are now intended to be rented out, would involve complicated structures that would lead housebuilders into a red tape quagmire and leave the sector facing significant costs, says McGrigors, the leading commercial law firm.
Housebuilders are entitled to reclaim VAT incurred on newly built properties intended for sale, but if newly built properties which cannot be sold are subsequently put on the rental market, a proportion of that VAT must be repaid to HMRC.
HM Revenue & Customs has just announced that if newly built properties are sold to a letting subsidiary of the same company prior to being rented out, housebuilders will not have to repay any VAT recovered during the construction of the houses.
According to McGrigors, however, selling newly built properties to a letting subsidiary could give rise to stamp duty (SDLT) charges, as well as accountancy and financing issues, which could require complex and expensive structures to resolve.
Alex O’Conner, Partner, McGrigors, comments: “HMRC is essentially saying housebuilders do not have to repay VAT, but only if they jump through hoops and put in place quite complex and costly structures. Why can’t HMRC simply waive repayments of VAT from financially embattled housebuilders while the market is so depressed?”
“Selling properties to a letting subsidiary is by no means a straightforward process. It may mitigate VAT, but there are other potential pitfalls, such as stamp duty charges, which will need to be managed away. There are also accounting and financing issues, which could further complicate any such transaction.”
“Housebuilders who get the process wrong could still find themselves facing a significant tax liability.”
He adds: “We certainly welcome the confirmation by HMRC that it will not be challenging these structures, but this is not a major concession. We have been using these structures for some time and we knew that they were very robust. What we would like to see is HMRC going a step further and waiving VAT in these cases without the need to set up expensive additional tax structures.”
Andy Peat
Business Development Director
Telephone: +44 (0)20 7054 2710
Mobile: +44 (0)7894 835 386
Email: andy.peat@mcgrigors.com
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