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Option to tax a property

Option to tax a property

A non-VAT-registered client is buying a commercial property which he intends to rent to one of his VAT registered companies.  The vendor has opted to tax the property so my client will suffer VAT on the purchase price.  What is his best way of minimising the tax suffered.


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By DMGbus
14th Mar 2012 09:42

Need to opt to tax

The vendor is obliged to charge VAT on the selling price unless one of the following applies:

Buyer is to use property for charitable useBuyer serves notice that the existing commercial property is to be partly or wholly converted to residential (VAT1614D)Transfer of going concern rules apply ("TOGC")

It seems that points 1 and 2 don't apply here.

As for point 3 this requires that there is a sitting tenant in the property at the point of transfer plus the buyer opting to tax the property at the correct time and being VAT registered.

The TOGC arrangement has two advantages: cashflow plus reduction in Stamp Duty (SDLT).

If none of the points 1 to 3 apply then the vendor shall have to charge VAT.  The buyer then can only reclaim the VAT that they have been charged if they have registered for VAT and opted to tax at the correct time. 

VAT notice 742A and form VAT1614A are relevant here.

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14th Mar 2012 12:40

Thank you for such a comprehensive reply.

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