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Commercial rental property: keeping track

Did you know that most supplies of land and buildings are exempt from VAT?

If you’ve opted to tax, the supply of commercial rental property will be standard-rated for VAT purposes.

If you’re running a commercial rental property business, then it’s quite possible that you’ve opted to tax. This will ensure that the VAT on any running building costs can be claimed back.

However, what happens when you purchase a commercial rental property and the seller has opted to tax? Do you need to opt to tax as there is already an option taken out on the building by the seller?

If you want to carry on renting the commercial property, then yes. The option to tax only applies to the business that’s made the decision.
With the option to tax muddle now solved are you free to claim back all the VAT on the purchase of the building?

Not quite… if you’re planning to continue the commercial rental property business, then the purchase of the building will be what is known as a “Transfer of Going Concern (TOGC)”.

If all the TOGC conditions are met, then the seller will waive the VAT charge when selling the building to you. One of the conditions is that you would need an option to tax on the building before the purchase.

The good news is that a TOGC for will help your cash flow – you wouldn’t pay the VAT over to the seller and then possibly have to wait a few months to claim back.

The other good news is that there will be reduction in Stamp Duty (SDLT). Remember, stamp duty is based on a percentage charge of the gross amount you pay for the building, the gross amount would include the VAT.

So if we have a TOGC purchase then there will be no VAT charged so a reduction in SDLT will apply.

All clear?

AIMS Accountants for Business – let us tackle the technicalities.