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Is there VAT on sale of commercial property?
The sale of commercial property in the UK is generally exempt from VAT, which means the purchaser does not have to pay VAT. However, there are important exceptions to this rule:
Exceptions to VAT Exemption
- New commercial properties: The sale of a ‘new’ commercial property (less than 3 years old) is subject to VAT at the standard rate of 20%.
- Option to tax: Commercial property owners can opt to charge VAT at the standard rate (currently 20%) when selling their property. If they choose this option, they must:
- Notify HMRC within 30 days of making the decision
- Charge VAT on all supplies related to that property
- This decision typically lasts for 20 years and is largely irrevocable
- Transfer of Going Concern (TOGC): If the property is sold as part of an ongoing business (e.g., with tenants in place), it may qualify as a TOGC and be outside the scope of VAT.
Do you pay VAT when selling a commercial property?
When it comes to selling a commercial property, VAT can be a bit of a headache.
Here’s the deal:
Most of the time, you don’t have to worry about VAT when selling commercial property. It’s usually exempt. But, as with most things tax-related, there are a few catches to watch out for.
If your property is brand new (less than 3 years old), you’ll need to slap 20% VAT on top of the sale price. Also, if you’ve previously opted to tax the property (which some businesses do for various reasons), you’ll have to charge VAT too.
Now, if VAT does apply, it’s typically the buyer who’ll be footing the bill as part of the purchase price. But here’s a little wrinkle: if you’re selling the property as part of an ongoing business (what the taxman calls a Transfer of a Going Concern or TOGC), you might be able to sidestep VAT altogether.
Bottom line? VAT on commercial property sales can be tricky. If you’re scratching your head over whether you need to charge VAT or not, it’s worth having a chat with a tax expert or giving HMRC a ring. Better to sort it out early than have a nasty surprise later!
When VAT Applies to Commercial Property Sales
While most commercial property sales are VAT-exempt, certain situations may require VAT to be charged:
- New commercial properties (less than 3 years old)
- Properties where the seller has opted to tax
- Significantly refurbished or renovated properties
Opting to Tax
Commercial property owners can choose to ‘opt to tax’ their property. This decision:
- Requires notifying HMRC within 30 days
- Means charging VAT on all supplies related to the property
- Lasts for 20 years and is hard to reverse
Why would a seller opt to tax? It allows them to reclaim VAT on costs related to the property, such as maintenance or improvements. However, it also means they must charge VAT on the sale, which could put off some buyers.
Commercial property owners can choose to charge VAT at the standard rate of 20% when selling their property. This decision allows them to recover VAT on related costs but has implications for both the seller and buyer.
Here’s a quick overview of the pros and cons of opting to tax:
| Pros | Cons |
|---|---|
| Ability to recover VAT on costs | Must charge VAT on all supplies related to the property |
| Potential tax advantages | May deter some buyers who cannot recover VAT |
| Can be beneficial for refurbished properties | Decision lasts for 20 years and is largely irrevocable |
Transfer of a Going Concern (TOGC)
A TOGC is a special type of transaction that falls outside the scope of VAT. For a property sale to qualify as a TOGC:
- The property must be capable of being run as a rental business
- The buyer must intend to use the property for the same kind of business
- Both parties must be VAT registered (or the buyer must register immediately after the transfer)
Claiming Back VAT
If you’ve paid VAT on a commercial property purchase, you might be able to claim it back. This depends on:
- Whether you’re VAT registered
- If you’re using the property for VAT-taxable purposes
Tips for Handling VAT on Commercial Property Sales
- Get professional advice early on
- Think about the long-term impact of opting to tax
- Keep detailed records of all property transactions
- Understand the property’s VAT status before buying or selling
- Be aware of the Capital Goods Scheme for properties over £250,000
How much is VAT on commercial property?
The standard VAT rate on commercial property, when applicable, is 20%. This applies to new properties or those where the seller has opted to tax.
Can I claim back VAT on commercial property purchase?
Yes, you can claim back VAT on a commercial property purchase if you’re VAT registered and using the property for VAT-taxable purposes. However, this depends on whether VAT was charged on the sale and your business’s VAT status.
Is VAT payable on sale of commercial property?
VAT is not usually payable on the sale of commercial property, as it’s typically exempt. However, VAT may be due if the property is new (less than 3 years old) or if the seller has opted to tax the property.
Tips for Handling VAT on Commercial Property Sales
- Seek professional advice early in the process
- Consider the long-term implications of opting to tax
- Keep detailed records of all property-related transactions
- Understand the VAT status of the property before purchase or sale
- Be aware of the Capital Goods Scheme for properties over £250,000
Simplify Your Sale with Property Saviour
Selling a commercial property can be tricky, especially when VAT is involved. That’s where Property Saviour comes in. We buy any problematic property quickly for cash, whether it’s VAT elected or not.Our team understands the ins and outs of commercial property transactions. We can handle all aspects of the sale, including VAT considerations, offering you a hassle-free solution.
We promise:
- The price we offer is the price you’ll receive – no hidden deductions
- We’re genuine cash buyers – no mortgages or bridging loans needed
- No long exclusivity agreements
- £1,500 towards your legal fees
- Completion in as little as 10 days, or at a timescale that suits you
If you’re looking to sell your commercial property swiftly and without the usual headaches, why not get in touch with Property Saviour today? We’re here to make your property sale as smooth and straightforward as possible.
Sell with certainty & speed
Property Saviour Price Promise
- The price we’ll offer is the price that you will receive with no hidden deductions.
- Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
- These valuations or surveys result in delays and price reductions later on.
- We are cash buyers. There are no surveys.
- We always provide proof of funds with every formal offer issued.
We'll Pay £1,500 Towards Your Legal Fees
- No long exclusivity agreement to sign because we are the buyers.
- You are welcome to use your own solicitor.
- If you don’t have one, we can ask our solicitors for recommendations.
- We share our solicitor’s details and issue a Memorandum of Sale.
Sell With Certainty & Speed
- Our approach is transparent and ethical, which is why sellers trust us.
- 100% Discretion guaranteed.
- If you have another buyer, you can put us in a contracts race to see who completes first.
- Complete in 10 days or at a timescale that works for you. You are in control.
