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VAT reclaim on commercial property purchase

How can the Option to Tax ever be in place at the date of purchase?

Didn't find your answer?

I risk having my head chopped off here, so disclaimer:   I haven't come across this particular situation before, a quick search suggests it has not been discussed here before, I can't easily find the specific answer by Googling, and I am truly humbly deeply sorry if I am wrong about any of those things.

Client is a commercial landlord, VAT-registered and has Option to Tax, but the Option to Tax specifies its existing properties, by address.

Client now proposes to buy a new building in another location which has VAT on the purchase price & in negs has assumed that VAT is reclaimable.

Client intends to rent new building out with commercial lease + VAT, exercising its existing Option to Tax.

1)  Is existing Option to Tax limited to the addresses client has already registered? If so, how does anyone ever reclaim VAT on a purchase? But if not, why is the address specified on the HMRC registration of Option to Tax?

2) If Option to Tax only begins in the future (because there is always a cooling-off period between application and granting of Option) then is VAT on a purchase made during the cooling-off period reclaimable?

Many thanks.

 

 

 

 

 

 

 

Replies (11)

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By tom123
30th Jun 2020 14:50

One can apply for the option to tax prior to owning the building.

They are building specific, as landlords will have properties for different uses / tenants.

Look at TOGC regs to see if they apply to the transaction.

Big money involved in property transactions, so worth being certain / get further advice etc.

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Replying to tom123:
Psycho
By Wilson Philips
30th Jun 2020 15:01

Quote:

One can apply for the option to tax prior to owning the building.


Indeed. One can opt to tax a building that one never owns. I could opt to tax your office tomorrow, for instance. It would be an idiotic thing to do of course but there is nothing (other than some anti-avoidance which would be unlikely to apply) to stop me from doing so.

To the OP - you've misunderstood the application of the cooling-off period. There is no 'gap' as you suggest.

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Replying to Wilson Philips:
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By jonharris999
30th Jun 2020 17:10

@Tom - I thought of TOGC, but it won't fly.

@Wilson - can you enlighten me? Do you mean that if the option is applied for before completion date, then the VAT will be reclaimable? If not, I don't see how anyone ever reclaims.

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Replying to jonharris999:
Psycho
By Wilson Philips
30th Jun 2020 17:21

To start with, if the option is exercised by Completion (strictly, before the price is agreed) it may be that no VAT is in fact chargeable, if TOGC conditions met. If they’re not, then the option can be exercised before Completion but it’s not essential - provided that it is done before any exempt supplies are made any VAT charged on purchase should be recoverable.

Don’t tie the option directly with the right to recover VAT. Recovery is linked to the making of taxable supplies, which is what the option achieves. The cooling off period does not delay the application of the option - it merely gives the taxpayer the chance to change their mind, but only before they make any taxable supplies as a consequence of the option.

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Replying to Wilson Philips:
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By jonharris999
30th Jun 2020 17:28

Thank you - that makes perfect sense.

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Hallerud at Easter
By DJKL
30th Jun 2020 14:50

You have different certs for different properties, I used to have a file of plastic wallets for them when we had more dealings in property.

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chips_at_mattersey
By Les Howard
30th Jun 2020 16:02

or, use a Real Estate Election, which applies to all properties he will ever purchase.

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Replying to leshoward:
Psycho
By Wilson Philips
30th Jun 2020 16:08

To be used with caution

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Replying to leshoward:
Hallerud at Easter
By DJKL
30th Jun 2020 16:51

I never knew there was such a thing, it does sound like a possible WMD in the wrong hands.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
30th Jun 2020 17:18

Anon - sorry if you worried about getting your head chopped off by posting. I'm pleased to see that some well informed members have replied with useful info.

I'm also glad you did, because I'm trying to work out the underlying conundrum.

I hope you get what you need from the conversation.

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Replying to John Stokdyk:
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By jonharris999
30th Jun 2020 17:33

Personally speaking I thought this was an exemplary demo of AWeb's uses, in the light of recent threads ::::)))))

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