VAT on Commercial Property in Kent

Exempt, standard-rated or opted

The starting point is that selling or leasing commercial property is exempt from VAT. That means no VAT on the rent or price, but also that VAT on related costs, such as refurbishment or professional fees, usually cannot be recovered. There are important exceptions:

• New commercial buildings. The freehold sale of a commercial building within three years of completion is standard-rated. Leases of new buildings remain exempt unless the property is opted.
• Specific supplies such as car parking, sporting rights and some storage arrangements are standard-rated regardless.
• Opted property. If the owner has opted to tax, rents and sales become standard-rated.

HMRC's guide to VAT on land and property covers these categories in more detail.

The option to tax

Opting to tax allows a VAT-registered owner to charge VAT on rents and sales and, in return, recover VAT on the costs of buying, refurbishing and running the building. It suits many owners whose tenants are VAT-registered businesses that can reclaim the VAT charged. It works less well where tenants cannot recover VAT, such as banks, insurers, charities or some medical practices, because VAT becomes a real cost to them.

Key practical points from HMRC's option to tax notice:

• You must normally notify HMRC within 30 days of the decision to opt, using form VAT1614A.
• If you have made exempt supplies of the property in the previous ten years, you may need HMRC's permission first, unless an automatic permission condition applies.
• An option can be revoked within six months in limited circumstances, and otherwise generally only once 20 years have passed.
• The option does not apply to buildings intended for use as dwellings.

Keep proof that HMRC received your notification. Buyers and their solicitors will ask for it.

Transfers of a going concern

When a let commercial property is sold with its tenants in place, the sale may qualify as a transfer of a going concern (TOGC), which falls outside the scope of VAT. Where the property is opted, the buyer must also opt to tax and notify HMRC before the relevant date for the sale, and confirm the option will not be disapplied. Getting the timing wrong can mean VAT is due on the full price, which can affect SDLT too. We review the conditions with you and your solicitor before exchange.

How we help

1. We review the VAT history of the property and any existing options.
2. We advise on whether opting suits your tenants and plans.
3. We prepare notifications or permission requests, and check TOGC conditions on sales.
4. We reflect the outcome in your VAT returns, and consider whether the VAT capital goods scheme or partial exemption rules affect recovery.

What we'll need

Purchase documents, details of any previous option to tax and HMRC acknowledgements, tenant details and lease terms, and costs incurred on the building. For developments, our property development accounts service covers the wider picture.

Commercial property in Kent

We advise owners of shops, offices, industrial units and mixed-use buildings across Kent. Send us a message before you buy, sell, let or refurbish and we will review the VAT position.