How Does VAT Work On Commercial Property?

VAT on commercial property transactions is a complex area for business owners to navigate. Many know that when they sell their business the sale will be free from VAT, but they don’t always appreciate why.

To help you make the right decisions we’ve summarised the key issues you need to understand when leasing or purchasing a commercial property. However, as with all legal issues, it is important to consider seeking expert advice as soon as possible so you can avoid any potential pitfalls.

What Is VAT Exempt?

The sale or lease of a commercial property is usually VAT exempt and in these situations, the purchaser or tenant does not have to pay VAT. While there may be benefits to this, it can be problematic if a vendor or landlord makes a supply of a property exempt and is then unable to recover significant VAT incurred on related costs.

Option To Tax VAT

Commercial property owners can charge VAT at 20%, which is currently the standard rate when selling or leasing their property.

When a vendor or landlord opts to tax a property, they need to usually charge VAT on all supplies they make relating to that property, therefore charging all rentals or sales. Landlords can, however, recover VAT that has been charged in relation to the property. Under the right conditions opting to tax can provide a real benefit, especially in situations where substantial refurbishment costs may have been incurred.

Opting to tax is not always appropriate, as some businesses cannot recover VAT incurred on the costs. These VAT adverse businesses can be in many sectors, including financial, insurance, health and charity. That’s why it’s important to consider the market sector of potential tenants or purchasers before you decide.

An option to tax must be notified to HMRC in writing. It is almost irreversible so making the correct long-term decision is critical.

Transfer of Going Concern

Transfer of Going Concern (TOGC) is another key consideration.

Where an opted commercial property is sold with tenants in place or with the benefit of an existing commercial lease, the vendor would normally be required to charge VAT at 20% - the standard rate. However, if the prospective owner intends to continue to let the property to the tenants then, subject to certain conditions, the transfer is a TOGC and no VAT is charged on the purchase price. This is clearly attractive for most buyers in these circumstances.

However, if the prospective owner allows the continuation of letting the property to the tenants, then subject to certain conditions, the transfer is a TOGC and no VAT is charged on the purchasing price. This is clearly an attractive option for some investors.

Sale Of New Commercial Property

Sales of ‘new’ commercial property, which is property less than three years old, is liable to VAT at the standard rate. In these circumstances, the buyer who intends to rent the property out is likely to charge VAT on future rents and sale of the property in order to recover the VAT charged on an acquisition.

The exception to this is if the property qualifies as TOGC.

How Prideview Can Help

The cost of non-compliance can be an expensive mistake to make in commercial property. Getting the appropriate advice at the outset is important and that’s where Prideview can help.

This is only a brief introduction to what is a very complex and technical area, but our team can help you navigate all the nuances of the law comfortably.

To find out more, contact us here.

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on pinterest
Share on email

CONTACT US

LATEST DEALS

Don’t miss out on our opportunities

Advanced Search

Try Selecting Multiple Options to search

Recent Articles:

22 Lockdown Deals Done as opportunistic enquiries surge

In the 3 months since the nationwide lockdown commenced in late March, the Prideview team has dealt with an unexpected …

Read More

Covid-19 debate: Buy now or wait til September?

For anyone looking for investment opportunities, this is the key question of the moment. Listen to these highlights of a …

Read More

Infographic: Pro Tips for Landlords Facing Coronavirus

If you found this useful, check out our full analysis of these issues in our Complete Guide for Landlords Facing …

Read More

Current Opportunities

In Auction
£ 375,000

Vacant Shop & Flat, Feltham, Greater London

98 Harlington Road West, Feltham, Middlesex, TW14 0JJ
Current Opportunity
Call for price

McColl’s & Well Pharmacy, Manchester

183/185 Victoria Avenue, Higher Blackley, Lancashire, M9 0RB
Call for price

Nail Salon, Stanmore, Greater London

7 Buckingham Parade, The Broadway, Stanmore, HA7 4EB
In Auction
£ 2,350,000

Development Site with Planning, Leicester

510 Melton Road, Leicester, Leicestershire, LE4 7SP
Call for price

Gym & Cafe, Liverpool

Lower Ground Floor, Silkhouse Court, 7 – 17 Tithebarn Street, Liverpoool, L2 2DP
Call for price

Heron Foods, Crewe

Heron Foods, site of former Merlin PH, Bradfield Road, Leighton Crewe CW1 3RH
Call for price

Co-op Food, Loughborough

Co-Op KnightThorpe Road, Loughborough, Leicestershire, LE11 4JX
Current Opportunity
£ 1,000,000

Vacant Restaurant & 3 Flats with Development Potential, Newington

53-57 High Street, Newington, Kent, ME9 7JJ
£ 50,000

Vacant (To Let) Retail Unit, Doncaster

Formerly The Factory Shop, Scrooby Road, Harworth, Doncaster, Nottinghamshire, DN11 8JW

Vacant Former Post Office, Pinner, Greater London

Ground Floor Unit, 67 Bridge Street, Pinner, HA5 3JB

The Home of the Blue-Chip Investor

Click the logos below to see relevant investment properties