VAT Land and Buildings update

Tax Alert August 2009

Renting Land

Generally speaking the rent you pay for letting a piece of land is an exempt transaction; in other words no VAT is added to the rent charged.

However the owner of land may elect for any rents charged to be treated as a standard rated transaction. The election would not apply to all the property he owns just the particular plot or building subject to the election.

So if you are letting land for a short period, say if you are hiring a venue for an antiques fair, be sure to ask if the owner of the land/building will be charging you VAT. Otherwise you may be saddled with a 15% VAT charge that you may not be able to recover.

Option to tax – can it be revoked?

The option to tax, treat rentals, purchases and disposals of particular parcels of land or buildings as standard rated VAT transactions was introduced 1 August 1989. The election lasts for 20 years. Consequently the first elections made August 1989 could now be revoked. One reason you may want to consider this relates to stamp duty land tax.

Stamp Duty Land Tax (SDLT)

A purchaser of a property that is subject to an option to tax (for VAT purposes) will pay SDLT on the VAT inclusive price. This may have a significant impact on the amount of SDLT payable especially if the VAT charged moves the SDLT payable into a higher banding, from say 1% to 3%.

Charities

If a charity (not registered for VAT) purchases a building that is subject to an option to tax, on the face of it they will have to suffer the cost of the VAT added to the property purchase. However it may be possible to reduce the impact of the VAT charged if a proportion of the building is to be used for relevant charitable purposes. This is an issue that has to be investigated before the property is purchased.

If you would like our help with VAT planning for property matters please get in touch before you sign a contract or lease!