Value Added Tax, or VAT as it’s more commonly known, is a tax on the value added to a product or service. As a property purchaser, you have the option to tax a property or can elect to waive exemption of VAT on a property. Transactions that may involve selling or leasing of land are not always exempt, but if a business decides to charge VAT (opts to tax), this will change. The business will go from being exempt to charging VAT. This then means that the business can recover its VAT costs on construction.  

So electing to waive exemption of VAT on commercial property will, mean that:

  • The VAT on property can be reclaimed on the purchase price (if elected prior to the property being purchased) and associated costs (upon receipt of the appropriate VAT invoices)
  • VAT on commercial property can be reclaimed on refurbishment costs (upon receipt of the appropriate VAT invoice)
  • VAT on property will be charged on the rent and on any invoices issued

Should a landlord choose not  to waive exemption of property VAT this will have the following consequences:

  • VAT on commercial property cannot be reclaimed on the purchase price (if applicable)
  • VAT on property cannot be reclaimed on any associated and refurbishment costs
  • Property VAT will not be applied to the rental payments

Once a property has been elected to waive exemption of VAT the property will remain elected for 20 years.

Please be aware that SDLT is applicable on the total purchase price + VAT of a property, and the VAT on SDLT cannot be reclaimed.

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