Is this property "Opted to Tax?"

Posted by Bridging Vat Ltd on 4th December 2019 -

How to tell if a commercial property purchase will attract VAT

Here at Bridging Vat, a question we get asked a lot by both Developers and Commercial Finance brokers is “How do I know if the property is opted to tax?”

This is obviously quite an important part of planning the purchase, cash-flowing the development, as well as what costs will be involved including stamp duty and the potential structure of the buying entity. If the building is opted to tax then in most cases VAT will be payable upon completion, if not structured as a Transfer of Going Concern.

Now you could think that it would be a material fact that needs to be clear and obvious, but sometimes is does get missed, or can be vague from the seller, especially if the property has been owned for a considerable length of time by the current occupier, which means documents can be misplaced.

A seller's solicitor should always be able to provide the Option to Tax, and if they cannot then further investigation must be done before any payments made. We cannot stress that point enough as non-recoverable means exactly that.

A good starting point is the age of the commercial building. If it is under 3 years old then it will be in the VAT system and opted to tax. Next, what is the main business activity of the current owner? If they currently charge VAT in their normal course of business, then they are likely to have opted to tax. If they do not charge VAT, then it is likely to be exempt. Industries that are exempt from VAT include Healthcare, Insurance Services etc.

Finally, HMRC has a specific Option to Tax Unit and the buyer should ask the seller to contact them here or on the VAT Helpline 0300 200 3700. They will only talk to the current owner or their agent and will not disclose information to a buyer. However bear in mind they are currently taking 40 plus days to respond and the answer may not be definitive.

HMRC will never confirm that a building is not opted - the best you will get is confirmation that they cannot trace an option. (Although they will give positive confirmation of an option should that be the case.)

If you are currently buying a commercial building or building site which is opted to tax and would like to discuss your options, please do not hesitate to contact us on email at [email protected] or by telephone on 01206 645 050.