BTL should attract VAT

Graham_Devon

Was talking to my cousin, who is a landlord (much older than myself too with family wealth which unfortunately is through marriage, not our side!) and he suggested BTL should attract VAT.

His main reason for saying this is that it would wash out the amateurs, of which he is sick of.

He suggested that if you buy a van for to sell ice creams from, it attracts VAT. If you buy a tractor to turn the fields, it attracts VAT. If you buy enclosures for cows, it attracts VAT. If you buy a web prescence for your online business, it all attracts VAT.

Therefore, why shouldn't BTL attract VAT?

Now, to be fair, he's been in this game for years and it's a family thing not something he actively tried to get into. He's not buying up houses to rent out, they have been in the family for years and he's not your average landlord trying to make a profit...these houses will be passed down to the next generation and so on. Infact he doesn't own them at all, it's his wifes side that does.

But he's sick of the bad press he now gets due to what he classes as chancers. He also feels for the tenants in these scenarios.

So, I don't know the in's and out's. He I presume knows more than myself. Should BTL attract VAT? Would that be a way of regulating the FTB vs BTL war?

StevieJ

Graham_Devon wrote: »

But he's sick of the bad press he now gets due to what he classes as chancers. He also feels for the tenants in these scenarios.

He can't feel for them that much if he wants to shove their rent up 20% :eek: then again most 'chancers' would be exempt, wouldn't they?

MacMickster

VAT only applies to businesses turning over in excess of £70K per year, so this would give the chancers a huge advantage over the professional landlords with multiple properties.

Graham_Devon

StevieJ wrote: »

He can't feel for them that much if he wants to shove their rent up 20% :eek: then again most 'chancers' would be exempt, wouldn't they?

I dunno. I couldn't really figure out how it works, not being a VAT genius.

I think, knowing him, he referred to chancers as people who took them on as investments, taking hundreds of thousands in loans. He comes from a background where investment means buying in cash. I suppose that's a different type of background. The same background I would assume as happened earlier in the 1900's where more people rented.

I'm just putting it up for discussion really. It isn't going to actually happen, but just looking at the merits of it. Is it for instance impossible to implement? Or if it's possible, would it work in terms of stopping every tom !!!!!! and harry jumping in and outbidding FTB's?

antrobus

Graham_Devon wrote: »

Was talking to my cousin, who is a landlord (much older than myself too with family wealth which unfortunately is through marriage, not our side!) and he suggested BTL should attract VAT.

His main reason for saying this is that it would wash out the amateurs, of which he is sick of. ...

No it wouldn't.

Even if it was decreed that rents were standard rated for VAT (as opposed to being exempt with an option to tax), the 'amateur' BTL landlords would be able to avoid charging VAT as long as they stayed under the VAT registration limit (£75k or whatever). It would in fact wash out the 'professionals', who would now be operating at a 20% cost disadvantage to the 'amatuers'.

antrobus

Graham_Devon wrote: »

...I think, knowing him, he referred to chancers as people who took them on as investments, taking hundreds of thousands in loans. He comes from a background where investment means buying in cash. I suppose that's a different type of background. ...

If you wanted to wash out those kind of 'amateurs' the easiest thing to do would be to change the law so that interest paid was no longer an allowable expense for tax purposes.

Graham_Devon

antrobus wrote: »

No it wouldn't.

Even if it was decreed that rents were standard rated for VAT (as opposed to being exempt with an option to tax), the 'amateur' BTL landlords would be able to avoid charging VAT as long as they stayed under the VAT registration limit (£75k or whatever). It would in fact wash out the 'professionals', who would now be operating at a 20% cost disadvantage to the 'amatuers'.

Thing I don't get is that I'm self employed. I'm not VAT registered due to being under the threshold.

However, I still have to pay VAT on goods. I just can't claim it back.

How would this be different if buying a property? You pay the VAT, but you can't charge VAT, neither can you claim it back (unless you are VAT regsitered...which would lead to issues later on when selling out of the business).

I'm showing my innocence here most likely....

HAMISH_MCTAVISH

Graham_Devon wrote: »

the FTB vs BTL war

Is mostly an artificial construct.

The only actual research on the subject I've seen showed prices rose by around 7% because of BTL.

(I'd suggest the far larger price rises caused by the housing shortage, were a bit more relevant to FTB-s....)

But equally, the doubling of rental stock in a decade surely caused rents to be lower than they otherwise would have been.

The real war is about FTB-s being forced to remain renters thanks to banks not lending them mortgages. And not enough houses being built today, thanks to mortgage rationing.

MacMickster

Graham_Devon wrote: »

Thing I don't get is that I'm self employed. I'm not VAT registered due to being under the threshold.

However, I still have to pay VAT on goods. I just can't claim it back.

How would this be different if buying a property? You pay the VAT, but you can't charge VAT, neither can you claim it back (unless you are VAT regsitered...which would lead to issues later on when selling out of the business).

I'm showing my innocence here most likely....

You seem to be confusing 2 issues.

As you operate below the VAT threshold you don't have to charge your customers 20% VAT on your turnover (equivalent to the landlord's rents) giving you a competetive advantage over your VAT registered colleagues.

With regard to the purchase of properties by landlords to rent out, even if the sale of residential property became VATable (extremely unlikely), if the landlord is buying from a private individual then they would not be charged VAT - in the same way that a 2nd hand car dealer doesn't pay VAT on cars that he buys from the general public.

A car dealer would effectively have to pay VAT on the profit that he makes when selling the car. A landlord pays capital gains tax on any profit made when selling a property.

Graham_Devon

MacMickster wrote: »

You seem to be confusing 2 issues.

As you operate below the VAT threshold you don't have to charge your customers 20% VAT on your turnover (equivalent to the landlord's rents) giving you a competetive advantage over your VAT registered colleagues.

With regard to the purchase of properties by landlords to rent out, even if the sale of residential property became VATable (extremely unlikely), if the landlord is buying from a private individual then they would not be charged VAT - in the same way that a 2nd hand car dealer doesn't pay VAT on cars that he buys from the general public.

A car dealer would effectively have to pay VAT on the profit that he makes when selling the car. A landlord pays capital gains tax on any profit made when selling a property.

Well that's explained it, cheers.

It was only a 2 min convo in the middle of another conversation, but it got me thinking!

As per the competitive advantage, I guess it depends on which sector you are in, but in my experience, those who are VAT registered have the competitive advantage, taking on the large scale stuff due to having the staff etc. Not that they would want the stuff I do....

chewmylegoff

Great idea graham. I'm sure the tenants won't mind paying 20% VAT on top of their rent.

Good for your cousin as well as he'll already bought his BTL do wouldn't need to pay it!