Option to tax property

Option to tax property

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Hello

A client is purchasing a commercial property for £ 200k plus vat.

1. Do the need an option to tax to reclaim the input tax on the property? 

2. Are there circumstances when ott is not required to reclaim the vat? If so, what are the pitfalls?

They will use it for their own offices, and their services are taxable supplies for vat.

Many thanks

Replies (4)

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By jvenegas16
20th Mar 2014 19:27

Confused

If there is already VAT charged on the purchase price of the property, the option to tax is out of the equation.

Thanks (0)
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By DMGbus
20th Mar 2014 19:58

Property VAT recovery

The recovery of VAT incurred on property (or any other expense) depends upon the use to which the expense or asset is put to.

So, if the property is bought for owner occupation by a fully taxable business to conduct it's VATable trade, then VAT recovery is available (without an option to tax being required) since the asset is clearly put to a taxable use.

The option to tax only becomes necessary &/or advisable where a commercial property is acquired to be rented out to tenants, such rent in most circumstances is VAT exempt so the only way of recovering VAT incurred is to make the rental income supplies taxable rather than exempt.  The conversion of supplies from exempt to taxable is only achievable by opting to tax the property (form VAT1614A).

There is also a further circumstance where an option to tax is advisable in circumstances where a less than 10 years old building is sold on, but this is another subject matter.

 

 

 

Thanks (2)
Replying to Accountant A:
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By tugwilson
21st Mar 2014 10:08

Property VAT recovery

Many thanks DMG.

Just a further question if you could help. If they owner occupy and don't have an ott, but later down the line let some of the building, I assume there is a clawback of some of the input tax?

Could you please point me in the right direction on this?

Thanks (0)
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By User deleted
21st Mar 2014 10:33

You could start here

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.por...

EDIT - just noticed that purchase price is less than £250k so CGS not in point (unless there is subsequent refurb in excess of that amount). So exempt letting of part of the building should not disturb the initial VAT recovery. Depending on the figures it may impact on future input VAT recovery under partial exemption rules.

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