VAT registered owns a commercial property which was purchased and refurbished 13 years ago, the property has been opted to tax and thus VAT was reclaimed at the time.
The tenant, a charity, has offered to purchase the property and the question of VAT has come up. Although they have not yet mentioned it, my understanding as per notice 742a. .3.5 is that if the property is intended to be used solely for charitable purposes, that the option must be disapplied. This hasnt been confirmed by the charity yet but before we discussed this with them I wanted to be 100% sure of the VAT position if it is disapplied, otherwise the client will need to find another buyer.
If the option is disapplied, the sale will be exempt and thus any input VAT incurred will not be recoverable, however there will be no clawback of VAT under the CGS as it was purchased and refurbished over 10 years ago?
One further point to add is that the company's only own actitivity is that over the years, it has also purchased some land and developed and sold new build residential properties which of course would have been a zero rate supply, I hope that the new exempt supply would not affect any recoverability of any VAT in respect of the past developments, although it has been around two years since the last one was carried out.