VAT (again) on opted in property. ..options on purchase

vickidm Registered Posts: 12 Regular contributor ⭐ ? ⭐
Hi All. I have potential client that is looking to purchase a commercial premises. He is thinking of personally buying property and renting back to business (which is vat reg and ltd). The property is opted in for tax. If he buys it under togc, as property currently is being used as rental. The vat would from my understanding be exempt, however again pls correct me if I am wrong, only if he too personally becomes vat reg. Are there any obvious pit falls that I should be aware of and pls can anyone recommend some good back ground reading I could look at. Thanks all


  • jamesm96
    jamesm96 Registered Posts: 523
    I think what you've said looks fine. You're right that the 'purchasing' business would also need to become VAT registered; you're transferring the VAT registered business as a continuing entity, and it needs to continue as a VAT registered entity if it is to benefit from any VAT relief (otherwise it must pay the VAT to the purchaser like any non-registered business / person) so the purchaser must be (or immediately become) VAT registered.

    Pitfalls - the first is that once the business is transferred, it must continue to carry out the same business. If you're buying a commercial property which is leased then, once the property is bought by the new business, it must continue to be leased out as commercial property.

    Timeframe would be the other main issue. You must notify HMRC of your decision to opt to tax within 30 days of making that decision. This might seem like a daft point because you can just tell them any date of making the decision because, how will they ever know, right? The issue is that you'll want HMRC to know that you made the decsion to opt to tax on or before the completion of the sale. Stamp Duty will be calculated based on the total cost. If there's no option to tax, then SDLT will also be calculated on the VAT inclusive price, whereas if there's an option to tax in place on the date of completion, SDLT is only on the net price. If the building is nearing £210k, then then VAT might just take it over the SDLT 3% threshold, so it makes a very significant difference.

    In other words, you must make sure HMRC have received form VAT1614A within 30 days of completion!

    Further reading? Try this:
  • vickidm
    vickidm Registered Posts: 12 Regular contributor ⭐ ? ⭐
    Hi Mike, thx so much for taking the time to reply and for all the fab advice re stamp duty. Will go through the back ground reading tonight as well just to ensure there is nothing else I need to consider. Thx again, Vicki
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