The Disapplication Of The Option To Tax

jilt

My client bought pub premises with an attached cottage in 2009. The cottage was used as a staff house for employees who had worked late and couldn't get home. He opted to tax the property so that he could claim back the VAT. The VAT was charged on 90% of the purchase price, according to the brewery this was their usual practice as the pub contained a managers flat upstairs which was classed as 10% of the property. This all took place before he was my client.

My client now wants to sell the cottage. He is considering a disapplication of VAT so that he doesn't have to charge VAT on the sale of the cottage as obviously the purchaser cannot claim VAT on a residential property. This would mean that my client couldn't claim any VAT paid on any selling costs and because the property cost in excess of £250k then a change from taxable to exempt within 10 years of its purchase would mean he has to adjust the amount of VAT originally claimed. 7/10 of the VAT paid on the original purchase will have to be repaid to HMRC if he goes ahead which would amount to £44K

Has anyone any experience of this as I'm okay with the above but my problems are:


He is only selling part of the property so is the amount of VAT repaid apportioned accordingly?

He pays business rates on the pub only, and council tax on the flat and the cottage, does that make a difference?

Have looked on HMRC's site and searched on google, and have tried Tolleys Tax Guide but haven't found anything yet so thought I'd ask on here as my client is expecting a planning decision on Monday from the local council and if it's favourable wants to put it on the market.