VAT on property sale



I am selling my business premises to a developer who intends converting it to flats. I assume that I will charge VAT on the sale. Am I correct?




The first thing to consider is the age of the property, as the sale of a new commercial building is always standard-rated for VAT. New in HMRC terms is a building less than three years from completion. If, however, the property is over three years old, the next point to consider is if you have opted to tax the property.


If you recovered input VAT on the property when first acquired for use as your business premises and you have not opted to tax the sale will be exempt. If you have opted to tax it will be a taxable sale unless the purchaser provides you with a form VAT1614D to dis-apply the option on the basis that he is converting the commercial building into residential.


A buyer can use a VAT 1614D to dis-apply the seller’s option to tax on a property of any value, however if the buyer intends to demolish the property completely to redevelop the site the option cannot be dis-applied and therefore the sale will be taxable.


If the sale is an exempt sale, due to it being an old building with no option to tax or the option is dis-applied you will also need to consider any potential clawback of input VAT originally reclaimed under the capital goods scheme.


The capital goods scheme applies to property which had an acquisition or refurbishment cost of £250,000 net or more and monitors the taxable use of same for 10 years.


It is important that any sale contract for property includes the correct VAT clauses and therefore you should speak to your advisor before buying or selling any commercial property.


The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.


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