The VAT treatment of a sale or letting (a “supply” in VAT-talk) of property is in principle simple – it’s exempt, unless it isn’t. The trouble is that the “unless” bit can get complicated: the VAT Act lists no fewer than fifteen exceptions which are standard-rated and not exempt, not counting the special rules about what used to be called the option to waive exemption but is now called the option to tax.
Some of the exceptions (or at least some elements of some of the exceptions) are widely known. Most people, for example, know that the provision of sleeping accommodation in an hotel is a taxable supply (though you may not know that the same applies to rooms provided for the purpose of a supply of catering: and let’s not start on exactly what “catering” means for VAT purposes). Other exceptions are less well known and may catch out the unwary.
One of the exceptions relates to “the grant of facilities for the self-storage of goods”. This was introduced in 2012 to level the playing field as between traditional depositories (which have always been obliged to charge VAT) and self-storage businesses (which before 2012 were characterised as granting customers a licence to occupy land and therefore exempt). However, the exception applies far beyond what most people would recognise as “self-storage businesses”. In particular, it extends to the letting of any part of a building used for the storage of goods by the person to whom the building is let. The key point is that it’s the use of the space that is relevant, not the character of the property let. So if a trader lets the flat above his shop to someone who uses it as residential accommodation, the letting will be exempt. If the same trader lets the same accommodation to the same person who merely stores goods there, the letting will be standard-rated. It’s good practice therefore to include in any letting agreement a clause to the effect that the tenant, if using the space for storage, must tell the landlord and pay an additional 20% on the rent to cover the VAT.
Another of the exceptions relates to “holiday accommodation”. This is defined as including “any accommodation in a building, hut (including a beach hut or chalet), caravan, houseboat or tent which is advertised or held out as holiday accommodation or as suitable for holiday or leisure use”: this may catch, among other things, lettings made through Airbnb or (particularly) HomeAway. But the definition is non-exclusive and in some circumstances accommodation which is not specifically advertised or held out as holiday accommodation may be caught, especially if it is located in a traditional holiday area.
If, in either case, that is the only taxable supply you make, and the income is below the VAT registration threshold, the fact that the supply is standard-rated rather than exempt is of only academic interest. But if you are already VAT-registered, you will need to include on your VAT return the VAT on the letting income along with any other output tax you charge. Alternatively, consider whether it may be possible to plan for any unconnected standard-rated supplies of this kind to be made by a different person or entity from that which is registered for VAT.
For more on the excitement that is VAT and property, please get in touch with your usual BKL contact or use our enquiry form.