Temporary lets

HMRC have recently issued clear guidelines about the VAT issues of a new house developer renting out properties on a temporary basis — and the repayment of some input tax claimed because an exempt supply of rental income is being made rather than a zero-rated property sale.

One solution to avoid a VAT problem is to form a new company and sell the completed properties to the new company before rental income is generated — the first building company does not therefore incur any irrecoverable VAT because its only income is zero rated.  I have a client who has raised this issue in relation to his own company — but I am worried about the corporation tax and SDLT issues of such an arrangement. The key figures are as follows.

• The company has ten flats which had a work in progress valuation of £2 million as at 31 March 2008...