Housing slump sees property developers take rental VAT hit

House builders unable to sell properties due to the housing market downturn could face a hefty tax bill if they decide to rent out new homes, HM Revenue & Customs has warned.

Advice published by the government body warns developers may have to pay back VAT they have reclaimed due to the different treatment of VAT on selling and letting properties.

HMRC claims than many house builders will not be affected as there are exemptions for small amounts of tax involving temporary lets.

But some property developers could be liable for repayments before any rental income has been accrued, as the trigger for repayment was the intention to rent, reports the Financial Times.