Commentary

V7.445 Input tax and pension schemes

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.445 Input tax and pension schemes

Part V7 Tax planning | Commentary

V7.445 Input tax and pension schemes

An occupational pension scheme is often managed by trustees as a separate entity from the employer. The trustees can either be individuals or corporate members. If the scheme needs to become VAT registered it will be the trustees who register because the scheme has no separate legal status.

Example 8 provides an example of a situation where a pension scheme registers for VAT because the trustees purchase commercial property as an investment and make the decision to opt to tax the property. This means that rental income from the property will be standard rated rather than exempt and allows VAT on the relevant costs to be recovered.

Example 8

The trustees of ABC pension scheme intend to purchase a new commercial property for £800,000 plus VAT. The intention is to rent out the property to a firm of solicitors to generate rental income for the fund of £40,000 per year. The scheme is not registered for VAT at the current time.

What is the best option for the trustees as far as VAT is concerned?

Solution – the only way for the scheme to be able to recover the VAT on the purchase of the property, and any maintenance and repair costs, is if it registers for VAT and elects to opt to tax the property.

Registration for VAT will be on a voluntary basis because taxable supplies will be less than the VAT registration threshold, assuming the scheme has no other sources of taxable income

The solicitors renting the

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