We are looking at selling our property, a diversified farm with a number of converted buildings that were opted to tax. Is this going to impact on the saleability?
When carrying out new construction works many will often choose to elect to charge VAT, so that they can recover the VAT input tax incurred. The extent can be limited to the specific building, rather than the whole property. Be aware that following the initial six months – an option to tax can only be revoked after 20 years, except in limited circumstances, for example where the building is demolished. If the property is being sold as a business, then it should be treated as the transfer of a going concern and therefore VAT should be recoverable.
This changes if the property is in private ownership and is just being sold as an asset. If the property is being purchased by a company, that company can ultimately recover the VAT it has been charged. A private individual, however, cannot generally recover any VAT incurred on their costs. The VAT on costs incurred is not therefore a cashflow problem (as with a business waiting for its tax return), but a direct cost.
Depending on the size of the property, and the area that is opted to tax, it may restrict marketability of the property. It is key to ensure that if you have opted to tax, you are clear about the extent of property that is being opted and obtain an estimate of the apportioned value. This will help purchasers identify the potential VAT liability at the outset, which in turn will reduce complications and delays.
We have spent a lot of money on our equestrian property and now want to sell. But the valuation isn’t quite as high as we expected
This is the age-old problem of how to increase the value of one’s property without over-capitalising. It is a personal decision for any property owner as to what they spend on enhancement and other works, but costs do not necessarily create enhanced value.
This can be because the works are relatively specific to the owner’s personal needs – and therefore can affect the marketability – but usually it is because the cost of enhancement is over and above the increase in market value, particularly when using high-quality materials. Many owners will accept this position if it is their long-term main residence, and the use and enjoyment of new or high-quality facilities is more ‘valuable’ to them than a profit-making exercise.
However, if a sale is on the horizon then this is not the time to over- capitalise. Here are some options that can add value:
The Basic Fundamentals – These are the elements that can be taken for granted, but if they are not present they affect the functionality of the property. This may not necessarily deter purchasers but may encourage ‘negotiation’ room on price. For an equestrian property these would include having working field troughs in every paddock, ensuring careful stocking rates to avoid poaching, having safe secure fencing and ensuring good drainage to enable year-round turn out.
Versatility is Key – Try to make specialist facilities as versatile as possible. This can include the building height, layout and design, which may suit your needs, but could also easily be adapted for potential other uses.
Presentation – This is the easiest way to create a good impression. Even the basics of a tidy and organised yard with freshly mown lawns will be received far more positively than a haphazard set up. Regular maintenance, such as a programme of redecoration to ensure the property is kept in good condition, will avoid a reduction in value to account for repairs.
Size Matters – The ratio between facilities and land available is very important, particularly for equestrian properties. If the property is short on acreage then, if possible, consider acquisition of more land in order to widen the appeal. To purchase neighbouring land you may well pay a premium over market value, but such a premium may well help the overall sale with provision of an enlarged acreage.
Statutory Consents – Makes sure all necessary permissions for buildings and uses are in place or, if not, consider a timely application for a Certificate of Lawfulness. Additionally you could consider if a relatively inexpensive planning application for a new facility may add value.
If you would like to find out more about the matters discussed or any other valuation issues please contact Alice Huxley, alice.huxley@knightfrank.com