VAT on land and property is one of the most complex areas of tax and, given the high value of many land and property transactions, the incorrect VAT treatment can be costly.
Broadly speaking, land and property transactions are exempt from VAT. However, there are exceptions where supplies are standard-rated, reduced rated, zero-rated or exempt. This all depends on the nature of the property. For VAT purposes, subject to meeting certain criteria, a property transferred as a going concern may not be a supply at all.
There are further VAT rules which apply to the construction of new buildings. This also includes the conversion, renovation, and repair of existing buildings.
Businesses must understand what is what with regard to land and property VAT.
When it comes to applying the correct VAT rate to land and property there is no ‘one-size-fits-all’ rule. Every transaction must be considered on its own merit, bearing in mind such issues as:
Understanding the VAT implications of land and property transactions can result in significant VAT savings.
VAT remains one of the least understood of all taxes. This is why we set up a specialist VAT advisory department. Our team is here to help guide businesses through the complex maze of VAT legislation.
We help with all areas of VAT, but have specific expertise in land and property transactions. This includes providing VAT advice to the construction industry. Whatever your VAT query involves, get in touch with our team of specialists today.
Commercial property rent is VAT exempt as a default – this means the tenant does not need to pay VAT. However, the property owner may opt to tax the land and buildings. This would mean that rent would be subject to VAT at the standard rate.
Learn more about VAT on commercial property in our detailed blog.
Rent from a property is usually exempt from VAT. This means that VAT is not charged, but it also means the landlord cannot recover input VAT on any expenses incurred on running the business – including refurbishment.
However, the landlord may opt to tax the property if it is a commercial building, enabling them to charge VAT on the rent and therefore recover VAT on refurbishment and other expenses.
VAT incurred on the construction or purchase of a new-build commercial property can be reclaimed if the property is to be used for business purposes and VAT is chargeable on the supplies made by the business.
The construction of new dwellings such as houses, bungalows and flats is zero rated.
Residential property that is deemed a “dwelling” (houses, bungalows, flats, etc.) are typically an exempt supply. This means that there is no VAT on the sale.
Yes, land registry fees are exempt from VAT. Some solicitors may add VAT to their fees when dealing with land registry. It’s best to clarify with your solicitor if land registry fees are listed as a separate disbursement or included in their fees with VAT applied.
The sale of land is typically exempt from VAT. However, the seller may notify HMRC of an Option to Tax for the land to enable them to reclaim VAT incurred on their expenses. If the seller has opted to tax, then VAT will usually be payable by the buyer at the standard rate of 20%.
Stamp Duty Land Tax (SDLT) is a tax in and of itself, which means you do not pay VAT on it. Stamp Duty is payable on the whole amount paid (known as chargeable consideration), which will already include any applicable VAT.
Generally speaking, land and property transactions are exempt from VAT. However, there are exceptions. Some property transactions are standard-rated, reduced-rated and zero-rated. For VAT purposes, a property transferred as a going concern may not be a supply at all.
Exceptions to the exemption of land and property include freehold sales of new civil engineering works, parking facilities and facilities for playing any sport. There is a lot of complexity here, so we recommend consulting the government’s official guidelines, or contacting our VAT team for assistance.
Scott Burkinshaw
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