Extra tax for housebuilders renting out properties

Housebuilders struggling to sell new homes face paying extra tax if they decide to rent them out, experts have warned.

HM Revenue and Customs has advised developers they could be forced to repay VAT they have already claimed back because of differences in VAT for selling and renting properties.

Some housebuilders will be able to avoid the extra charges thanks to rules that let them ignore small amounts of exempt input tax relating to temporary rents.

Alex O’Connor, of McGrigors, said the news could force some housebuilders closer to bankruptcy.

He told the Financial Times: “Housebuilders are already under severe financial strain as the price of newly built properties plummets and stock remains on the market.

“The only option in many cases will be to rent, but having to repay VAT could cause severe cash-flow problems and in some cases even bankruptcy.”