Housebuilders face extra tax bills if they rent out new homes they have been unable to sell, according to official advice that will add to pressures on the sector.
Property developers could be forced to repay value added tax they have already claimed back because of the differing VAT treatment of selling and letting properties, according to advice published by Revenue & Customs.
Alex O’Connor of McGrigors, the professional services group, said the tax implications of putting unsold properties on the rental market were likely to come as a shock to some builders.
'Housebuilders are already under severe financial strain as the price of newly built properties plummets and stock remains on the market,' he said.
'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.'