VAT Implications For Developers Letting New Builds

The current economic climate and the slowdown in the property market has caused some property developers to turn to letting newly-built properties which they are unable to sell. Whilst this provides developers with a source of income in difficult circumstances, it is important that developers are aware of the VAT implications of such action in order to avoid unexpected VAT liabilities or penalties.

VAT incurred by developers in the construction of new properties is recoverable based on a developer's intended use of the property. When the newly built property is sold or a long lease of over 21 years is granted, it is classed as a zero-rated supply. This allows the developers to recover the VAT incurred in the development costs for such properties prior to any sale or long lease being granted.