VAT / Opt to tax / new lease question!

Whose responsibility is this if previous owner opted to tax but client was unaware and leased ....

Didn't find your answer?

Hi, wonder if anyone can help??

Our client purchased a property in 2015 as an ongoing concern. At the time our client was not aware that a previous owner opted to tax. Subsequently, VAT was not added on the grant of the lease to our client's tenant, who, though at the time of purchase, also registered his company for VAT. Since then, the tenants have been paying their rent plus VAT and client has made the usual VAT returns; if any purchases were made that were subject to VAT then this would be deducted accordingly. Therefore is VAT payable on the grant of the lease?? If it is, whose responsibility is it? Client or tenant if HMRC make a demand?

Any help would be most appreciated!

 

Replies (4)

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chips_at_mattersey
By Les Howard
26th Apr 2024 15:18

Look to the contract document; this should contain clear VAT provisions, which will indicate who is liable should any 'additional' VAT arise in relation to the contract.

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By Paul Crowley
26th Apr 2024 15:21

Sounds a bit messy. The prior owner's option does not carry on to the new owner, unless transferred as a going concern. I assume that the prior owner charged VAT on the sale.
Did the new owner opt? And did he inform HMRC?

I will stop there. VAT on property is precise, and likely to be the big PII claim if messed up. If you are not confident, get a VAT specialist to sort out the muddle. A proper specialist, not someone who worked for HMRC and thinks HMRC understands the rules.
EDIT
Having now seen Les's comment, not sure any of the above is correct, other than to let the VAT expert sort it out

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Replying to Paul Crowley:
By Ruddles
26th Apr 2024 15:42

Agreed. It is a mess and a lot more information would be required before I would even attempt an answer. On the face of it a number of mistakes have been made along the way.

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VAT
By Jason Croke
26th Apr 2024 16:19

Not entirely sure I understand everything (in general as in life) :-

Our client purchased a property in 2015 as an ongoing concern.... Okay

At the time our client was not aware that a previous owner opted to tax..... So was this a valid ToGC? Maybe/Maybe not. If we are saying the seller had opted to tax, then this would only be a ToGC (and outside scope of VAT) if the buyer also opted to tax at time of purchase, else if buyer did not opt to tax then the seller should have charged VAT on the selling price of the property.

Original Poster - did your client pay VAT when buying the property or was it a VAT free Transfer of a Going Concern?

Subsequently, VAT was not added on the grant of the lease to our client's tenant, who, though at the time of purchase, also registered his company for VAT......as others have noted, the option to tax does not move to the new owner, each owner makes their own decision to opt to tax or not.

Since then, the tenants have been paying their rent plus VAT and client has made the usual VAT returns; if any purchases were made that were subject to VAT then this would be deducted accordingly. Therefore is VAT payable on the grant of the lease?? If it is, whose responsibility is it? Client or tenant if HMRC make a demand?

This last section is what is throwing me, a whole load of questions lumped together casually. You ask the question about whether VAT is charged or not on the granting of a lease but the property was bought in 2015, so what's been happening since 2015? Why has the question of leases not arisen before? You state that VAT was not added on the grant of the lease to our clients tenant but then later you state that tenants have been paying VAT and your client paying this over to HMRC.

Original poster = I'm confused, how can you ask about a grant that has no VAT on it and at same time tenants are being charged VAT. I realise your title mentions a new lease, but am confused as to why a new lease changes the status of the property? If rents are VATable, why would this new lease not be VATable?

It is Friday, I have had a tough week dealing with the ineptitude of HMRC, so do forgive me, I may not be seeing the wood for the trees, can you try and explain the core of the problem again please?

It sounds like a "de facto" option to tax situation, which is where a landlord charges VAT on rent and reclaims VAT on inputs but without formally notifying the option to tax.

Have a look at this HMRC manual on "belated option to tax" and that manual links to the HMRC Notice section 4.1.2 which gives more details on belated options.

https://www.gov.uk/hmrc-internal-manuals/vat-land-and-property/vatlp22410

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