Service: VAT 

Sector: Property 

VAT: Land and property issues and how to address them

By Richard Staunton

13 Sep 2021

The VAT issues associated with land and property are a common area of concern for many people. 

This is partly due to the fact that often the transactions are large and one-off, and once a transaction occurs it is difficult to put right if a mistake has been made. 

In addition, the area can quite easily attract any one of at least four VAT liabilities;

  • land and property by default is exempt from VAT 
  • there are exceptions and usually, there is an option to allow VAT to be charged, effectively by opting to tax
  • in addition sales of tenanted land or property can be treated as not a supply for VAT purposes, i.e. outside the scope of VAT
  • finally, for certain construction works and installations, the reduced rate (currently) can apply

One major area of difficulty revolves around obtaining evidence that a person has opted to tax property. As mentioned, the property is generally by default exempt from VAT but a taxpayer can waive that right normally just by letting HMRC know. HMRC should then acknowledge that option by letter. When a property is sold and VAT is charged the purchaser will naturally want evidence that VAT has been correctly charged and this will mean a copy of the HMRC acknowledgment. The problem here is that often the seller may have mislaid that evidence and there is normally a wait for HMRC to respond. To compound that problem often HMRC have lost their copy of the letter, or for a certain period of time, a formal acknowledgment wasn’t needed. If a sale of a commercial property is imminent this can cause delays, because the buyer will be wary about paying VAT when unsure about a property’s status.

The lesson here is to plan early to ensure that VAT issues will not delay any sale.

This is just one area of VAT and property that can cause problems. In addition, now we have left the EU the exemptions such as land that we normally could rely upon in EU law could change. Earlier this year HMRC launched a consultation on the future of the land exemption. One option was to make all land taxable, with a right to opt-out. This appears to just add complexity rather than simplifying the issue, but we are awaiting their comments.

This consultation is likely to be the first of many changes in VAT over the next few years while efforts are made to increase the tax base. For further information, contact our VAT team today. 

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