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VAT on commercial property

Can we de-register a commercial property on which VAT was reclaimed on purchase?

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Hello. 

-we are buying a surf shack built less than 3 years ago, which has short term rentals already booked for the following 24 months

-vendor has elected to charge VAT on the sale price of £350,000

-we are buying it through a VAT registered Limited Company

1) is it correct we can reclaim the £70,000 VAT paid on purchase?

2) but then we will have to charge VAT on rentals?

3) but if we're stepping into the shoes of the previous owner, who hadn't been charging VAT on the rentals so far, do we lose 20% of all rentals agreed so far?

4) is there a way to reclaim the VAT on purchase, and then to "de-register" the property for VAT so as to no longer have to charge VAT on rentals, and on future resale?

5) there are conflicting pieces on the internet, such as (i) "the VAT doesn't follow the property" - but it appears to and (ii) there appears to be a 20-year period during which we have to charge VAT on rentals, or resale

6) do we negotiate a "TOGC", but then still have to charge VAT on rentals, and resale?

Thank you in advance for any help.

Replies (11)

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Jason Croke
By Jason Croke
02nd Feb 2021 21:13

You need to speak with an Accountant.

Why is the vendor only now electing the property for VAT? Was it always "elected" or are they just doing it now at point of sale?

Why are you buying the business in a VAT registered entity when you then want to deregister for VAT? You are purchasing the business via a VAT registered company, what does this company do? Why not use a NewCo (is funding the issue?).

At £350k, the property is a capital goods scheme item, this means if you deregister you will repay the VAT reclaimed on the property (potentially) depending upon how long you stay VAT registered for.

If the conditions for ToGC are met then the sale is outside the scope of VAT, its not optional or up to the vendor to decide, the facts decide.

There is a lot to go wrong here, the guidance is confusing because they need to be read/understood together not as separate pieces of guidance . You're spending £350k on a business, don't get it wrong by trying to do this yourself....property and VAT is where it is easy to go wrong.

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Replying to Jason Croke:
Psycho
By Wilson Philips
02nd Feb 2021 22:12

Pretty much agreed, with one query - if they deregister is it not simply the case that they would need to account for output VAT on the value of the property , ie regardless of whether it’s a CGS item?

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Replying to Wilson Philips:
Jason Croke
By Jason Croke
03rd Feb 2021 10:59

My reference to CGS was that if they are just buying the property plus VAT, they don't need to opt to tax the property to reclaim the VAT, when deregistering, the property would not be opted and the self supply rule looks at your taxable assets/stock, thus no output tax due on property....but you'd have clawback or CGS to contend with (hence my phrase "potentially, depending upon how long you stay registered for"). Probably not clear but i didn't want to get into the complexities/detail.

If the OP opts to tax the property in order to achieve ToGC (because the vendor has opted), then yes, when deregistering they'd have a self supply of a taxable (opted) asset and output tax due regardless of CGS or not.

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Replying to Jason Croke:
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By Edward Stein
03rd Feb 2021 08:39

Thank you for your answer.

In response to many other replies advising me to get advice, I always consult my longstanding accountant first on any such questions - but they never provide answers and have to go and ask the "technical" service they subscribe to.

Time to change...

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Replying to Jason Croke:
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By Edward Stein
03rd Feb 2021 08:40

Thank you for your answer.

In response to many other replies advising me to get advice, I always consult my longstanding accountant first on any such questions - but they never provide answers and have to go and ask the "technical" service they subscribe to.

Time to change...

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Replying to Edward Stein:
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By Paul Crowley
03rd Feb 2021 10:14

What you mean is they get specialist advice like any sensible accountant would. But if you prefer to go to the idiot that give knee jerk response, that is your choice

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Replying to Paul Crowley:
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By Tax Dragon
03rd Feb 2021 11:16

I agree.

Additional (@OP): Aweb does not (cannot) provide specialist advice. (There may be specialist advisors here, but that's not the same thing.)

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By Paul Crowley
02nd Feb 2021 21:32

VAT and property is a specialist area
Best get a specialist

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By frankfx
02nd Feb 2021 22:05

Who booked the short term rentals for the next 24 months?
The Vendor?

Are the bookings assigned to you?

How?

The bookings and contract terms may need to be considered alongside the acquisition of the property.

There may be Covid 19 commercial risks to consider.

There may be nasty shocks in the forthcoming budget.

An accountant will help you stress test a number of scenarios.

Outside your control.

And those you can control.

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Replying to frankfx:
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By Edward Stein
03rd Feb 2021 08:40

Thank you for your reply.

What "nasty shocks" in the budget are you considering?

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By Wanderer
03rd Feb 2021 03:07

You've been advised before to engage with an accountant and / or VAT specialist:-

https://www.accountingweb.co.uk/any-answers/vat-on-boat-inside-a-uk-ltd-...

It's really a high risk strategy to try to go it alone and / or rely on the advice from strangers on the internet. This is particularly true with VAT and property transactions. Other parts of your question also displays areas when you can get other VAT issues VERY wrong.

Take the advice already given.

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