The Government’s view of what the housing sector should be doing is clear: build, build, build
In that light, a good piece of advice for housing associations looking to commission more stock, is that VAT development companies have now removed most of the irrecoverable VAT on development expenditure. However, this does not typically include any VAT incurred on the land acquisition.
Obtaining relief for this VAT is a complex process. There are many possible ways of resolving the issue, but unfortunately no one-size-fits-all solution.
The default position is that the sale of bare land is exempt for VAT purposes. This is a positive development for purchasing housing associations: with no VAT applied to the purchase, there is no need to determine whether any VAT is recoverable. There is also, usually, a lower stamp duty land tax (SDLT) bill, because this is charged on the gross land value – in other words, consideration plus VAT.
However, when the vendor makes an exempt sale of the land, they are not normally entitled to recover any VAT incurred on costs connected with the sale. This includes any VAT incurred on the purchase of the land and associated professional fees. Vendors of land often therefore choose to tax the land, so that its sale becomes subject to VAT at the standard rate and they are able to recover all VAT on related costs. This situation then, however, becomes less attractive for the purchasing association.
Fortunately, there are a number of possible answers, including:
All these and any other solutions need to be balanced against your association’s commercial aims for the land and any other taxes, primarily SDLT. In our experience, it’s important to review these as early as possible in the process, while the development options are still flexible and there’s time to negotiate successfully with the vendor of the land.