What I need to know about VAT as a homeowner

A little place to call one’s own and to hopefully retire in is a goal many of us share. Whether your intention is to buy or build; unarguably, owning a home is a significant investment.

This article aims to highlight a few VAT considerations to ensure that the cost thereof does not soar beyond what you planned for.

The first thing to note is that buying a home intended solely for use as a place of residence for yourself is not subject to value-added tax (VAT), as the supply constitutes a zero-rated supply.

Likewise, if you find that your home was not your dream home after acquiring this and you wish to dispose of this to an individual who will use this as a primary place of residence; the disposal thereof is also a zero-rated supply.

It is thus important to note that the place should be/ intended for use as a primary place of residence to qualify for the VAT zero rate.

On the assumption that the disposal is a once off transaction, you are not required to register for VAT on the disposal, as one of the requirements for registration which would not be met, is carrying on an activity regularly or continuously.

Secondly, where you decide to not dispose of the property but rent this out, the rental thereof to an individual who will use this primarily as a place of residence would not require you to account for VAT on their rental charge as this constitutes an exempt supply, i.e. a supply which does not trigger VAT.

RENOVATIONS

Thirdly, if you intend on making renovations to the property – whether you rent this out or occupy the property – it is important to assess whether renovations will constitute an improvement, as improvements are subject to VAT at the rate of 15%.

Improvements generally include aircons, built-in cupboards, alarm systems, interlocks, swimming pool, outside braai, etc. Your contractor will thus charge you VAT at the rate of 15% on these expenses.

Where you opt to erect a building as opposed to buying and the above amenities are included in the cost from the developer, including extension to the property, e.g. adding an additional bedroom with an aircon and built-in cupboards, the entire purchase price would be zero rated. It is only where the amenities are added afterwards or procured separately by the homeowner that these would be considered as improvements/goods purchased subject to VAT at the rate of 15%.

SUBCONTRACTORS

Fourthly, the use of subcontractors such as architects, surveyors etc. would also be subject to VAT at the rate of 15% if supplied to the developer, who most likely passes these costs on as part of the purchase price. It is only services directly to the homeowner that may qualify for the VAT zero rate provided these pertain to erection or extension of the property and not improvements.

In conclusion, VAT may become an added cost to your investment where any improvements are made to your property and it is recommended that you plan accordingly.

• Memory Mbai is the senior manager for VAT at PwC Namibia.