BB/24/94 Sale of property under a power of sale—recovery of VAT on costs incurred by mortgage lenders
Business Brief, Issue 24. 8 December 1994
Customs and Excise have reconsidered the VAT treatment of costs incurred by mortgage lenders when selling property to realise their security in circumstances where a borrower has defaulted on a loan.
This Business Brief explains the reasons for this and sets out the arrangements which will apply for the future. It also sets out the position on payment of claims for past periods.
Business Brief 20/93 indicated that Customs were prepared to see lenders as agents of the borrower in arranging the sale of repossessed property, and hence allow them to claim bad debt relief (BDR), where appropriate, on the VAT incurred on selling costs.
However, Customs subsequently became aware that the order of attribution of the proceeds of sale under the Law of Property Act 1925 s 105 might override the Bad Debt Relief Regulations. This is because under s 105 the proceeds of sale are allocated first to costs such as those incurred in selling the property, which threw some considerable doubt over whether a bad debt was created on which relief could be claimed.
Doubts arose also about the status of lenders as agents and there was concern that some claims had included costs which went beyond the terms of the Business Brief. Customs therefore issued a further Business Brief 5/94 suspending the processing of claims, until such time as they could take legal advice and examine more