Optimising VAT on property purchases and the subsequent rental is a potential minefield.
Here is one situation where I supported a client
My client bought a property with the intention of renovating and converting it prior to letting.
He wanted to let the property to two trading companies he owned, one of which only carried on VAT exempt activities.
His initial advisers had assured him that he only needed to opt to tax to recover all his VAT.
They did not make him aware of the concept of partial exemption or of the option to tax anti-avoidance rules.
In addition, he had plans to lease the whole building to his own property company, which would then have sublet to the two trading companies. If implemented, this plan could have left him without any VAT recovery at all.
I advised my client on how to ensure that he did not lose all his VAT recovery and guided him through the steps he had to take to ensure that he reached the optimum VAT position possible that was compliant with the regulations.