VAT warning on overseas holiday lets

VAT warning on overseas holiday lets
People who own property overseas that they let to third parties need to be made aware of the VAT consequences of doing so.
Marcus Ward, Managing Director of Marcus Ward Consultancy, said that the UK has the highest VAT threshold in the EC. This means owners of ‘sideline’ businesses, such as the rental of second or holiday properties in the UK, only have to consider VAT if income in relation to the property exceeds £85,000 a year, and this is only likely if a number of properties are owned.
It should be noted that, unlike other types of rental of homes, holiday lettings are taxable for VAT purposes.
Ward said: “However, EU Member States have nil thresholds for foreign entrepreneurs. This means that if any rental income is received, VAT registration is likely to be compulsory. Consequently, a property owner who rents out a property abroad will probably have a liability to register for VAT in the country where the property is located.
“Failure to comply with the domestic legislation of the relevant Member State may mean payment of back VAT and interest and fines being levied. VAT registration, however, does mean that a property owner can recover input tax on expenditure in connection with the property: for example, agent’s fees, repair and maintenance and other professional costs. This may be restricted if the home is used for periodical own use.”
He added that given that every country has differing rules and/or procedures to the UK, it is crucial to check all the consequences of letting property overseas. Additionally, if any other services are supplied – for example transport – this gives rise to a whole new and significantly more complex set of VAT rules.
Ward added: “A final word of warning. I quite often hear the comment, I’m not going to bother – how will they ever find out?’ I have heard of authorities carrying out very simple initiatives to see if owners are VAT registered. In many resorts, income from tourism is vital and this is a very important revenue stream for them, so it is well policed.”