Property developers letting out newly built properties beware
The unfavourable economic climate almost all over the world and slowdown in property markets has made some property developers let out newly built properties which are proving difficult to sell. Although this seems to be a source of income for property developers in these difficult times, it is essential that they are made aware of the VAT implications of these situations which could include penalties and liabilities.
However, ways have been devised to recover VAT incurred by developers based on the intent with which the property is used. This includes leasing newly built property for over 21 years or selling it and is categorised as zero-rated supply. Those developers, who chose to lease their newly built properties for VAT purposes, will be unable to recover the VAT costs incurred during construction. The reason behind this is that they will be seen as investors rather than developers.
Once the market recovers, it is likely that developers will resume their intentions to sell the property. If this is the case, only a certain part of the originally recovered VAT will have to be paid. Keeping the interests of property developers in mind, it is important to make them aware of these consequences so that during the slump in the property market, they can choose to either let out these new properties or leave them empty while looking for buyers.
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