The purchase of new property and undeveloped commercial property or land, purchaser or tenant will be exempt from VAT on new commercial property purchase UK by default or will not be liable to pay VAT on commercial property purchase price. Seller or landlord is not able to recover VAT or reclaim VAT on commercial property purchase price related sale or leasing costs and charging VAT on new commercial property sale.

On certain exceptions, purchaser or tenants will have to pay VAT on commercial property purchase price if

  • commercial property and a part-completed property that is less than 3 years old
  • seller or landlord has elected to charge VAT on commercial property sales UK at a standard rate of 20% to recover or reclaim VAT on property-related sale or lease costs i.e., incurred on renovation or repairs and legal fees of property.

If suppliers or landlords have decided to elect to charge VAT on commercial property sales, they must notify it to HMRC in writing or by filling the form available on HMRC website within 30 days of making this decision. However, due to coronavirus HMRC changed and extended the time limit of notification to 90 days for opting to tax decisions that you made between 15 February 2020 and 31 May 2020. Moreover, supplier or seller should consider this option of opting to tax carefully before notifying to HMRC as this option will not be reversible for 20 years except under some circumstances once it notifies to HMRC. If purchasers are charged VAT on commercial property purchase price, they need to make their own decision that whether they need to apply for opt to tax or not to reclaim VAT in future and it also depends on their use of a building.

As some businesses market sectors including banks, financial institutions, and businesses in the health, welfare and charitable sectors cannot claim or recover VAT and opting to charge VAT to such market sector of particular buyers will have a negative effect on selling and leasing ability, so suppliers need to consider particular members of buyers before opting to tax on selling or leasing property.

Transfer of going concern VAT commercial property:

If the property or office building or assets are sold or leased as a part of going concern, where the purchaser or tenant will continue the same kind of business with assets as seller and buyer or tenant is already a taxable person is known as the transfer of going concern (TOGC). As the transfer of going concern is treated as outside the scope of VAT, so buyer will not be liable to pay VAT on commercial property purchase price. For example, If the seller sale the trading property or used the property as trading before sale but buyer used this property as an investment property or continue the business of investment by trading property or assets, this property will not be treated as a transfer of going concern due to different use of it.

How to get advice for VAT on a commercial property purchase?

If you need any help regarding any area of VAT and VAT implications or VAT on commercial property, get in touch with our expert team of VAT and Berkshire accountants at Berkshire accountants limited to get expert advice by clicking here. We VAT advisers based in Reading, Berkshire.

Disclaimer: Please note the information in this blog above is for information only. It must not be used as advice to act upon and any specific questions should be discussed with one of our staff at Berkshire Accountants Limited.