“When it comes to tax avoidance, it looks like Customs & Excise is effectively making landlords into tax collectors. At best it is an administrative nightmare, and at worst it is unworkable,” said Alan Pickering, manager of Prudential Portfolio Managers’ property accounts department.
The Budget closed the option of charging VAT on either sale price or rent unless the purchaser or lessee can reclaim 80% of the VAT.
Knight Frank’s Bradley Baker said: “Potentially it is good news for financial tenants who normally have a VAT recovery rate significantly lower than 80%.
“Landlords need to look at solutions to the potential shortfall. For developers who are working on a tight margin it could prove critical.”
Hillier Parker’s Nick Baucher said: “Developers will have to swallow VAT on construction costs, which will affect site values.”
Hugh Love, VAT property specialist at Coopers & Lybrand, believes that the system will result in a variety of new covenants.
