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Commercial Property VAT and Option to Tax

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Our Commercial Property Lawyers act for clients in a wide variety of business acquisitions and it is important that your VAT position has been considered before embarking on your new purchase. Whilst we are not tax advisers or accountants, we are able to ascertain the VAT status of a Property and collaborate with your accountant to ensure that you receive the best possible advice at the outset and avoid unnecessary delays.

VAT and Option to Tax
 
A purchaser buying a commercial business which is a freehold is subject to VAT at a 20% usual rate, this is exempt for commercial properties under 3 years old or if the property is subject to an Option to Tax. It is a matter for the purchaser to make additional enquiries via their solicitor, with the sellers to establish the accurate VAT position of a Property.
 
A business will be exempt where a Property has been elected to Tax and the seller has the right to an “option to waive” tax. If the new purchaser continues to use the property as a “TOGC” Transfer of a Going Concern, the business must meet certain criteria to comply with HMRC’s requirements:
 
  1. Assets are to be used by the purchaser with the intention of carrying on the same business as the seller (but not necessarily identical).
  2. Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
  3. There must not be a series of immediate consecutive transfer of “business”.
 
These TOGC rules are there to simplify accounting for VAT purposes and also relieve the buyer from the burden of funding any VAT on a purchase, therefore helping businesses improve their cash flow and avoiding the need to separately value assets which may be liable at different rates.
 
If you require any further advice from HMRC, their details can be found on the following link: https://www.gov.uk/government/organisations/hm-revenue-customs/contact/vat-and-option-to-tax
 
Alternatively, please contact our Commercial Property Team on 0161 785 3500 or email enquiries@pearsonlegal.co.uk.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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