VAT On Sale Of Residential Property UK

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Many property owners in the UK who sell their properties have to pay VAT. The tax levied on all the expenses incurred by selling the property, including advertising, legal fees, and other expenses related to the transfer of ownership.

The seller’s obligation to pay VAT depends upon when they purchased the property and whether it was freehold or leasehold-owned property at the time of purchase.

When thinking of selling a property, or perhaps, you already did and would like to find out the best way to get rid of it. This blog post article will focus on a few things you should know about VAT on the sale of residential property in the UK.

Also read: Lockdown Home Buyers Flock to Countryside

What is VAT on the Sale of Residential Property UK?

VAT (Value Added Tax) is a tax that applies to the sale or purchase of anything. The rate of VAT varies depending on where you live. If you sell your property in the UK, you will need to pay VAT and income tax on the sale.

Also read: What Happens After Exchange of Contracts When Buying Home?

Even so, VAT on sale of residential property in the UK is a sales tax that will be real when you sell your residential property. The amount of VAT you have to pay depends on the value of the property and whether or not it is a new build. If you are selling your home but are not moving out, there are two main options:

  • You can opt to pay the VAT in full at the time that you sell your property. The £250 fee will be added to all invoices from the seller and paid directly into HMRC. 

Such means that once all payments that occurred, neither party will require further action until after the settlement has taken place.

  • If you would like to defer paying VAT until after settlement has taken place, then this may be possible depending on individual circumstances. 

Also read: The Conveyancing Process on the Sale of a Property

HMRC may grant an exemption if they believe that you may not be able to afford it now or if they feel that this would cause undue hardship to you or anyone else involved in the transaction.

Also read: Can I Buy A Second Residential Property?

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Rate of VAT on Residential Property UK

VAT is 20% on most goods and services in the UK. The VAT rate lowers to 5% for industrial and 3% for non-industrial consumers.

The basic rate of VAT is currently 20%, but other rates apply to depend on the goods or services you are buying. For example, two rates of VAT apply to food: a zero rate for non-alcoholic drinks and alcoholic drinks; and an additional 3% rate for restaurants, hotels, cinemas, and theatres.

 The main benefit of having a lower VAT rate is that it is cheaper for businesses to sell their products or services. That means you can find out what other businesses are charging in your area before deciding how much you want to pay. 

It also helps smaller companies compete with larger ones as they can undercut them by selling their goods or services at lower prices than their larger competitors can afford.

Also read: What Is a Draft Contract When Selling a House?

VAT on Commercial Residential Conversion

If you are converting a commercial property into residential use, the sale of the commercial property will trigger VAT. The full amount of VAT payable on the sale of a commercial property is calculated by reference to the business rates for the year the conversion is over.

The rate that applies depends on whether you are converting a flat or house and whether you sell it or let it. If you convert a flat into a house, there is no change in business rating or VAT payable.

If you sell, exchange or assign any part of your business premises (flat), then new business rates will be applied to those premises, which will get added to the value of any VAT liability due. 

If you have an existing VAT liability because of previous losses, this figure may increase further as new business rates get added.

Also read: UK Residential Property Market In 2022

VAT Exemptions

The first thing to understand is that the VAT exemption for residential lettings is a legal requirement rather than a commercial decision.

Because it is a basic principle of tax law, you can only deduct VAT when selling something, not when you are using it. So if you are renting out your property and claiming the VAT exemption, all your tenants must pay UK income tax on the rent they receive.

Also read: Lockdown Home Buyers Flock to Countryside

In Conclusion

If you sell a house, you should prepare to pay out some money to the tax man. While successful sales often bring in the big bucks, you will have to pay an even bigger buck to the tax authorities for selling your home.

Of course, all these rules are subject to change with any new legislation that comes into effect. However, this gives you an idea of what taxpayers should expect.  

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