Moving house costs can add up.
There are many costs that people are unaware of.
One of them is value-added tax (VAT).
But when is it charged in property? And how much is it?
We’ve answered these questions below.
Is there VAT on house sales?
VAT is not usually charged on residential house sales.
However, other costs involved with the house-selling process may include VAT.
Professional services
For example, conveyancer and estate agent fees. If these professionals are VAT-registered, it will be included in your bill.
Associated costs
Before selling a home, many people take steps to increase its value.
For example, renovating a residential property will often incur VAT from suppliers and products.
Exemptions
Demolishing an entire residential property to ground level involves costs which are exempt from VAT.
This also applies to the rebuild budget. But if only part of the property is demolished, VAT may apply.
Is there VAT on residential property when renting it out?
Not usually. Income from renting out a residential property is exempt from VAT being charged on it.
This is still the case even if a tenant has registered a business from the property (as long as they meet conditions, such as not using over 40% of the property for commercial purposes).
Is there VAT on commercial property sales?
Not in most cases. But there are a couple of exceptions.
If the commercial property is older than three years, VAT is unlikely to apply.
VAT is charged at the standard rate for a newer property in the last three years.
As mentioned above, the costs associated with selling a commercial property may include VAT.
And the construction of a commercial property will often involve VAT, too. This could include building an extension and thus hiring contractors.
Is there VAT on commercial property when leasing it?
In many cases, leasing out a commercial property is exempt from VAT.
However, the landlord can change this by charging VAT at the standard rate.
Are there exceptions to VAT on house sales?
Not really. When you buy or sell a residential property, VAT does not apply.
You should be aware of other taxes that may apply. Capital gains tax could be charged if you own a house under a company name.
You may also need to plan for Stamp Duty Land Tax payments. Even when owning the house in your personal name.
It’s worth checking if Corporation Tax applies to your profits, too.
