VAT Options to TaxMay. 16, 2017, 10:45am
We are often asked by clients, how they can recover VAT on a property acquisition? Do they need to make a VAT Option to Tax?
The property in question may be a commercial property where the price charged is plus VAT; as the vendor has an Option to Tax in place. However, the building could be a new commercial building when the sale would be standard rated.
The recovery of VAT suffered on a property acquisition is particularly relevant where the purchaser is looking to acquire the property and then rent it out, in this instance do they need to opt to tax the building? It may be the case that the purchasser has no intention of occupying any part of the building for their own use, and will not need to do any work to it in the immediate future.
For a new commercial building (defined as up to three years from the date of completion), if the purchaser is buying the freehold then the property would be standard rated with or without an option to tax being made by the vendor. This applies to all freehold sales within the three year period, not just the first. However, if a long lease were to be granted without an option to tax in place this would be exempt from VAT.
If the property is rented out by the purchaser, without an option to tax having been made on acquisition, then the supply will be exempt. The purchaser will be unable to recover the VAT incurred on the acquisition of the property or on any other costs relating to the purchase.
If an option to tax is made, then the purchaser will charge VAT on the rent, and will be entitled to recover the VAT on the acquisition and associated costs.