Chiene + Tait VAT Director Iain Masterton is featured in the most recent LandBusiness magazine discussing the VAT treatment of Land Promotion Agreements (LPAs).
Iain conveys the attractiveness of rural land development to property developers – and how, in turn, this enables landowners to enter into LPAs with promoters when they wish to maximise their income. LPAs can be arranged in different ways so that the partnered promoter can aid the landowner with their return of the sale without the added pressure of obtaining planning permission or finding a buyer. As these agreements are flexible – and can be in place for many years – it is essential that landowners understand their VAT position so that the end VAT cost does not surprise them when the sale ultimately ends.
Iain confirms that it is important to understand what the LPA originally says. Often there is an initial understanding by the landowner about the right over land. This depends on if the land is opted to tax. If it is not, then the grant of any right over the land is exempt from VAT. However, for there to be a right over land, the agreement must make it clear that that is exactly what the promoter is acquiring. In some cases, the promoter is in fact not receiving the right to the land but instead an exclusive right to promote the land in question. This is a taxable supply of services. Due to this technicality, VAT errors can occur for landowners who have already received introductory or extension payments.
When a promoter is involved, they will be acting as an agent and therefore will charge a commission which will be subject to VAT. This would be non-recoverable to the landowner if the sale did not go through. This can be avoided if the land is taxed prior to the sale as the VAT could be recovered on the promoter’s commission and any other legal fees associated with the sale.
Iain concludes by stating that LPAs are beneficial to both landowners and potential buyers – as this can maximise returns and sell the land at an optimal time for both landowner and developer. He would recommend, however, that the VAT aspects of these agreements are considered fully to ensure that there is no tax loss to landowners.
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