What happens if you paid and recovered VAT on a property purchase, but find you have to pay it back when you come to sell it on? Is there a solution?
This is just what happened to my client, an entrepreneur, who bought a pub that had closed, with the intention of renovating it and selling it on as a pub.
The brewery charged VAT on the sale, as the pub was no longer a going concern when my client bought it.
In order to recover the VAT charged by the brewery, my client opted to tax. However, he then received an offer to buy from a housing association.
The housing association could produce a certificate requiring him to sell on a VAT exempt basis, as it intended to demolish the pub and replace it with new houses that it would let on a short-term basis. This would have made it unable to recover any VAT charged by my client, hence its desire to buy it VAT exempt.
Unfortunately, an exempt sale would have led to our client having to repay most of the VAT that he had recovered on buying the pub, and all the VAT on his professional fees in buying and selling it.
I was able to guide him through the “Golden Brick” technique, which is approved by HMRC. This meant he did not suffer a VAT loss and the housing association was still able to buy without incurring VAT that it could not have recovered.