All About Vat on Purchasing a Commercial Property

Posted by Dynamic Project Advisory Ltd on November 19th, 2019

It’s quite difficult to understand the relationship between Commercial property and VAT. When it comes to dealing with commercial property, VAT is not mentioned when prices are quoted. And many people find it quite confusing to know whether the VAT needs to be paid. Find some of the questions as answered by our experts-

What Does “Opt to Tax” Mean?

A vendor and landlord can decide to “Opt to Tax”, which means a commercial sale can be exempt or it becomes liable to charge a standard rate that is 20%. In this way, the seller can charge VAT on top of any rent that they receive.

According to tax consultants in London, there are two main reasons why people go for “Opt to Tax.”

• To reclaim VAT on a commercial property purchase or refurbishment
• The intention to transfer the property as a part of Going Concern as well as both the buyer and seller want to make the transfer VAT free.

According to experts, if you choose the “Opt to Tax” route, you need to notify it to the H.M Revenue & Customs (HMRC) within 30 days of the taken decision. Did you know, once this decision has been made, it can’t be reversed for 20 years?

Reclaiming Vat on Commercial Property: When it comes to selling commercial property, there is an exempt from VAT. It means you don’t have to pay VAT on the Purchase price. And, if you’re running a vat registered business, you can reclaim VAT. The claim includes office space, retail and industrial units. Here are the following things you can claim VAT return for-

• Refurbishment, extensions and refitting
• Day-to-day repairs, cleaning and utilities
• Lease premiums, property purchase, and quarterly/monthly rents.
• Professional and legal fees

What is “Transfer of Going Concern”?

If a commercial property being sold that has tenants with the existing lease, then the commercial property transaction will be classified as a “transfer of going concern” or TOGC.

In this case, no VAT will be payable, which is no doubt attractive for buyers. TO meet the TOGC condition, the buyer must copy seller’s VAT position by the date of transfer. It means, if the seller is registered for VAT and has “Opted to Tax” the building, the buyer should also do the same.

Vat Upon Selling a New Commercial Property: When selling a new commercial property, any building under the 3-years old is eligible for standard 20% VAT rate.

This is an ideal situation for commercial property buyers who want to rent out the property. And they are more likely to opt to charge VAT on rents.

Lastly, if you’re new to the business, it is worth considering the monthly VAT returns instead of the quarterly one. It can ease the cash flow of your business, especially if you’re a startup. However, if you do this, make sure you submit returns quickly to receive the due money faster.

Author: The Author "Dynamic Project Advisory Ltd" is a tax consultant in London who look after the property buying and selling related transaction to let the property owner know when to exempt VAT with related blogs and article.