VAT on Property

VAT may not be recoverable on a refurbishment, unless Customs & Excise's prior permission is obtained before you Opt to Tax

There is a fine distinction between the right to use the facilities (standard rated) and a licence to occupy land (exempt).

An option to buy (a call option) is generally exempt.

An option to sell (a put option) is standard rated.

Sporting rights are standard rated, unless land is involved and then special rules apply.

Grazing rights are zero rated.

VAT becomes due on construction works at a long stop date, even though monies may be held in a retention account or under dispute.

Co-owners of a property are treated as single taxable persons for VAT purposes. You are therefore jointly and severally liable for the whole of the VAT.

On an exchange of properties, each party makes a supply for VAT purposes and rather disturbing valuation rules can apply.

Surrenders of leases (where the Landlord pays the Tenant) and reverse surrenders (where the Tenant pays the Landlord) are exempt subject to the Option to Tax.

Assignment of the Lease (where the Tenant sells and receives money) is exempt, subject to the Option to Tax.

Reverse assignments of the Lease (where the Tenant pays the Buyer to take on the Lease) are (in the view of Customs) standard rated supplies by the Buyer. This is being disputed before the European Court of Justice.

Reverse premiums (where the Landlord pays the Tenant to take a lease) are (in the view of Customs) standard rated supplies by the Tenant.

Rent free periods given in exchange for a binding obligation will attract VAT at the standard rate on the amount of the rent foregone.

Rental Guarantees (where Seller agrees to pay money to Buyer if the Buyer cannot find a Tenant) may be standard rated.

Insurance premium contributions charged by a Landlord as policy holder to the Tenant are standard rated.

A transfer of a going concern ("TOGC") is a compulsory non supply for VAT purposes and no VAT is chargeable on the transaction.

Examples of TOGC are the sale of let property, the sale of property with benefit of a prospective tenancy and the sale of let property during a rent free period.

The following are not TOGCs - sale of property, where the tenant is being sought and sale of let property to the tenant.

Get it wrong and, as Seller, you may have to pay VAT out of your sale price.

Related topics you may find useful:

Buying agricultural land
Taxation
VAT and commercial freehold property

Call Michael Breeze on 07900 195 195 or call 0845 270 2511 to set up an appointment