To print this article, all you need to do is be registered or log in to Mondaq.com.
The pressure for housing in all areas and the allure of a beautiful outlook mean that the immaculate landscaping of golf clubs is a tempting combination for developers. It is therefore not surprising that golf clubs are tempted to sell land for development.
However, clubs with spare plots of land need to consider VAT aspects very carefully, especially when promoters offer tempting terms.
Often a small initial fee is paid to a club for an ‘option to buy’ the land in question, with a large cash injection when planning permission is granted. However, nothing is as simple as it seems and golf clubs must make decisions that will benefit members.
At a basic level, any sale of land in the UK is exempt from VAT unless the seller has ‘chosen to tax’ or ‘chosen to waive exemption’. As some golf clubs know, adding additional exempt income can impact their VAT recovery. It’s not all catastrophic though! The impact is limited to the input tax on direct costs of sale where the sale of land is an ancillary supply. Since most golf clubs are not part of the real estate industry, the incidental supply rules will apply. This means that the value of the sale of the land is not included in the exempt income when calculating the recoverable input tax on general expenses, or “residual” VAT.
However, where the golf club is responsible for the costs of obtaining planning permission for the development, the directly attributable input tax increases rapidly and the club may be tempted to opt for taxation in order to recoup the input tax. .
Opting for taxation is not necessarily the answer either. It is not necessarily the VAT on the sale that is at issue, although cash flow can be an issue for promoters. It’s the Stamp Duty Land Tax (“SDLT”) that’s the fly in the ointment. The SDLT is due on the price including VAT of the value of the land and when a promoter has the choice between exempt land or a purchase with added VAT, the promoter can naturally choose the exempt supply, because the SDLT can reach 5% on a typical terrain. purchase of land for residential development and 5% of the VAT figure may accrue.
To counter this, developers can offer incentives such as a new clubhouse on part of the purchased land or the renovation/extension of the existing one. If the cash price is reduced by the value of the incentive, it is a barter transaction, and the value of the barter is that of the incentive. VAT would still be due on the cash value plus the value of the incentive. While the promoter may claim the VAT charged on the purchase price, the golf club may not be able to claim the incentive if the supply of it is taxable.
So any agreement to sell land for development needs to be scrutinized for any VAT issues and golf clubs need to be strong in their negotiations with developers. Advice should be sought on the details of the agreement before it is signed, otherwise it is difficult to mitigate any leakage of VAT.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
POPULAR ARTICLES ON: UK tax