VAT MATTERS: Residential and commercial property

By Jaspal Dhillon, senior manager, VAT
020 7490 7766

When purchasing property, VAT is something that is often overlooked. The following are key issues for consideration by both buyers and sellers of either commercial and / or residential property.

Commercial Property

  1. The age of property should be considered. If it was constructed less than three years prior, it is likely to be subject to VAT.
  2. Has the property been opted to tax (i.e. bought into the VAT system via the seller making an option to do so)? If this is the case then VAT will be chargeable on the sale price.
  3. If the sale of the property is subject to VAT, is it possible to remove VAT from the transaction? This may be the case if any of the following apply:
    a. The purchase is a transfer of a Going Concern.
    b. The seller and buyer are members of the same VAT group.
    c. The buyers' intention, with regards to what they will do with the property, means the option to tax is effectively cancelled.
  4. Is the occupier of the property, after the purchase (this is not necessarily the buyer), in a position to recover VAT on all of their costs? If not then the anti avoidance rules may apply and should be checked to ensure the option to tax is not disapplied.
  5. What are the long term intentions for the property? For example if the property qualifies as a Capital Goods Scheme item (costs in excess of £250k) the use of the property will need to be monitored over 10 years to ensure a VAT clawback is not
    triggered by a future event.

Residential Property

  1. Is the property being sold / purchased a newly constructed dwelling(s)? this can affect VAT recovery on related costs.
  2. Has the property been empty prior to purchase, if so, for how long? There are certain VAT reduced rates for works provided by builders on empty property.
  3. Is the property being purchased going to be subsequently converted? Again, as above, this can attract VAT reliefs on works provided by a builder. For example:
    a. Converting a non residential building into residential building.
    b. Converting multi occupancy dwellings (for example bedsits) into a relevant residential building, for example student accomodation or a care home.

The above is not exhaustive and there area number of issues that may need to be considered when it comes to VAT and property – and they will not always be obvious. Every property purchase / project is unique and the VAT implications (whether these be understanding when VAT is payable and how / if it can be offset, or obtaining VAT reliefs where applicable) must be considered on a case by case basis.

As always, if you have any matters that you’d like to discuss, preferably prior to completion as VAT is a tax that works in real time, please speak to your contact partner or directly to our VAT specialist Jas Dhillon

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