VAT on a new build

[KevinK]

Hi,

I purchased a new build property 3 yrs ago (actually completed in May 2007) and the price including the 19.6% VAT was 204,000 Euro. If I sell now does the new purchaser also pay VAT. I am confused as to whether to sell now or to hold for more than 5 yrs. If I hold is VAT that I have paid "lost" or should I try and claim it back now (approx 30,000 euro). I am resident in Britain and the property is rented out.

Would appreciate your advice,

Thanks,

Kevin.

 

 

[gosub]

The seller pays VAT on the sale price, if sold within 5 years, you can deduct VAT paid for any major work that you have full invoices for, i.e. kitchen, terracing, pool, having the water, electricity and  road put in.

[danny]

The new buyer will pay about 3% of the sale price in additional costs.

You will pay CGT in France if you make a profit on the sale at 16%, could be 18% next year. As regards Vat, it is payable on the sale price at 19.6%, so for example if you sell the property for €250,000 the vat would be €40,970, and you would be allowed to deduct any vat suffered when you purchased the property, provided you have invoices.

If you wait the 5 years then no vat is payable by you, however the new owner would end up paying about 7% in acquisition costs, thus making it less attractive to purchase that a house which attracts a 3% rate.

You state that the house was completed in May 2007, I assume that the appropriate H1 form was then completed, if so the 5 years would then end in 2012 april.

You also state that the house is rented, if rented unfurnished and depending on the profile of the tenant you may not be able to sell the house as quickly as you think.

I am assuming that you purchased the house not under one of the guaranteed rental schemes.

[Anton Redman]

My understanding is that the VAT is a once and for all payment. If I build and sell within five years I owe 19.6/119.6 less any VAT on the build. However if I pay VAT/TVA at 19.6 when I purchase from a builder or the person who built that is it, there may be a CGT liability but no additional VAT. Will check when I am back in France

[BJSLIV]

Did you buy the flat under one of the variously named schemes whereby you obtain a refund of VAT provided the flat is rented out for a number of years?

[KevinK]

Thanks for all the replies folks. I did not buy under the guaranteed rental schemes. I booked it off plan in 2006 and paid stage payments until completion in 2007. I then gave to an agent who has it rented out for me. An interesting point was raised that it may be difficult to sell with a sitting tenant. The only furniture I put in the property was a kitchen. Can it be sold to a new purchaser who is buying for investment and is happy to have an existing tenant paying rent.

That is another question on top of the VAT question though. So it was bought for 204,000 which included say 33,400 euro approx. If I sell for 250,000 euro the VAT the new purchaser pays is approx 41,000 euro. Am I correct in stating that I then pay the difference 41,000 minus 33,400 to the VAT man.

Or if I decide to keep property is it a good idea to try and reclaim the 33,400 VAT that I have paid..???

[P-D de Rouffignac]

The only safe way to ascertain what your and a potential buyer's tax position will be is to contact the Notaire ahead of any possible sale, and he/she will in turn get a definitive ruling from the appropriate tax office. These can vary considerably, on a case by case basis, and there is no standard reply however helpful the comments made by contributors to this forum.

P-D de R.

[BJSLIV]

Trying to sell with a tenant would , to me, seem to reduce the saleability and/or price of the property.

You could give notice to the tenant six months before the contact comes to an end, which would give them the right to buy at the price you are intending to sell the property.

Putting the question of the tenant aside your calculation of the VAT due is correct, assuming that you have included the VAT on the kitchen.

Its not worthwhile getting hung up on the VAT, because once the five years is up, the Notaire's fees will increase by about 10,000 Euros which, in selling price TTC terms, has a greater impact on your net receipts.

If you keep the property then the VAT paid is irrelevant, you have no right to reclaim the VAT any more than you would have on anything else you might purchase; cars, meals , CDs......

Don't forget you will also have around 6,000 Euros of Capital Gains Tax to pay.

 

 

[danny]

According to your figures your vat liability on sale less than 5 years would be about €7,500. You can not reclaim the vat on acquisition. You can dispose of the house with a sitting tenant, however you would be looking at a very limited market and would proably have to discount the property by between 10% and 20% to get a sale. Do remember the tenant would have first call on any sale. If the tenant is over 70 years of age, the house generally can not be sold, again if the tenant is over 60 and meets certain income levels the property may not be saleable.

[KevinK]

Thanks again for the replies. You are all very helpful. So the message seems to be don't get too hung up on the VAT. My fear was that if 5 yrs go by no VAT is payable by any prospective purchaser and the value of the property would go down. I suppose I really need to read round a few more threads that deal with same query. I am going to post a new thread thta concerns a business partner of mine so as not to clutter this one and would be grateful for any feedback.

[Anton Redman]

Agree with Danny on the figures above. Local to us agents say tennented properties sell based on rental income they generate.