VAT option to tax land and buildings
August 2010
The VAT option to tax in respect of non-residential land and buildings basically allows the owner to add VAT to the rents charged and recovery of input tax on costs associated with the property. With VAT projected to rise to 20% next year, this is obviously an opportunity for commercial landlords to reduce their costs. More importantly VAT would need to be added to any sales proceeds if an option to tax applies to the land/building when sold.
An option to tax would not be allowed for the following properties:
- Buildings designed or adapted for use as dwellings;
- Buildings designed or adapted and intended to be used for relevant residential purposes. Apportionment is required if the supply is of a mixed use building which includes some relevant residential areas;
- Buildings for conversion into dwellings or relevant residential purpose (certificate provided by the recipient of the supply on form V1614D before the price for the supply is legally fixed, for example by exchange of contract);
- Buildings to be used solely for a relevant charitable purpose;
- Land sold to a relevant housing association, which certifies that dwellings or relevant residential buildings will be constructed on the land on form V1614G;
- Land sold to a DIY house builder intending to construct a dwelling on it for their own use;
- Pitches for residential caravans which are capable of occupation throughout the year;
- Moorings for residential houseboats (with no means of self propulsion) which are capable of occupation throughout the year;
- Buildings used for both commercial and residential purposes - an apportionment of the supply must be made which gives a fair and reasonable apportionment between taxable and either zero rated (new build) or exempt supply.
Owners should tread carefully before considering this option - if you would like our opinion regarding properties you own, please call.
