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VAT on Sale of Property During Wind up


I've been asked the question of whether VAT is applicable to the sale of a property during a business wind up?

It is relation to a VAT registered partnership that has ceased trading and are in the process of realising assets to pay as much of the shortfall to creditors as possible.

The partnership owned a property that was utilised for the staff offices and the factory to produce their goods (i.e. the company did not trade in commercial property)the property has a charge over it from the bank for its entire value.

It is currently on the market for sale but they are unsure if when a sale occurs it will be subject to VAT?

Please could someone advise, or point me to where I could find further information?

Thanks in advance


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28th Jun 2012 09:51

Probably exempt

The sale (or lease) of property is normally exempt from VAT, unless it is a commercial (non-residential) property which the owner has opted to tax, in which case the sale (or lease) would be subject to VAT at 20%.

As the property was being used for the partnership's own trading purposes, it is most unlikely that they would have opted to tax it, because they could recover the VAT on repairs and maintenance of the property anyhow as a trading expense.  It is only the owners of commercial letting properties who usually opt to tax.  As they have no other VATable income, they cannot register for VAT and would not be able to recover input VAT on repairs, etc.  By opting to tax the property, they can register for VAT, charge VAT on the rental income and reclaim input tax.

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01st Jul 2012 09:00

You will need to consider whether the property was purchased by the partnership with VAT charged on it. That being so you, will need to consider whether the Capital Goods Scheme adjustment applies to the disposal and if it does the partnership may need to consider the option to tax as failure to do so may realise a VAT liability as the disposal will be Exempt.

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08th Aug 2012 13:41

Thanks for the advice guys, much appreciated

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