Housebuilders are havng a difficult time at the moment with having unsold houses in stock. One temporary solution may be to rent these houses to tenants but beware there is a VAT issue.

Sales of new houses are zero rated and the builder can make a full recovery of any input tax incurred.Rented properties are exempt for VAT purposes and therefore no input tax can be recovered.

So if we have a change of mind there is an issue with regard to input tax that has already been recovered with regard to the rental income.

HMRC have issued a very helpful notice giving details as to how the past recovery should be dealt with, this can be based on the expected sales price and rental income which may result in the past input tax falling into a de minimis claim with no clawback.Going forward the builder will fall into the partial exemption provisions and may not be able to fully recover future input tax.