Partner Article

Non-doms face VAT trap on holiday lets

Non-UK domiciled individuals renting out UK holiday accommodation could face an unexpected VAT charge.

For VAT purposes, the ‘place of supply’ of any land or property (or of services related to land or property) is where the property is situated. Ordinarily this would mean that, where an individual has a fixed or business establishment in the UK then, provided taxable (VATable) income fell below the VAT registration threshold of £79,000 per annum, there is no mandatory requirement to register for VAT on income gained from holiday lets.

But from 1 December 2012, non-established taxable persons (NETPs) without the benefit of a fixed or business UK establishment no longer benefit from the UK VAT registration threshold. All NETPs are therefore required to register for UK VAT when they make their first supply of goods or services in the UK regardless, of the value.

Short term holiday lets of residential property are, for VAT purposes, seen as fulfilling the same function, and in competition with the hotel sector, so NETP’s renting out any house, flat, chalet, villa, beach hut, tent, caravan, or houseboat in the UK will have a VAT liability on these holiday lets, regardless of the level of turnover.

But as ever with VAT, there are exceptions which could mitigate the VAT costs.

For instance, if the individual engages with a property management agent to administer UK bookings, collect rents etc, the letting agent creates an establishment in the UK and brings the income within the mandatory VAT registration threshold. There would therefore be no requirement to register and charge VAT if the holiday letting income is below £79,000.

If there is no such establishment and holiday lets are for a period of 28 days or more ‘off-season’, the income could be treated as exempt from VAT and consequently mandatory VAT registration could be avoided. This however assumes that there is an ‘off-season’ where the holiday let is situated – e.g. Edinburgh and London would be prime examples of areas that are not considered as having a holiday ‘season’.

As well as recognising income from holiday lets in self-assessment returns, non-UK domiciled individuals will also now have to consider the VAT consequences, regardless of how much income is received.

This was posted in Bdaily's Members' News section by Baker Tilly .