Exemption from VAT for land and buildings
Produced in partnership with Martin Scammell
Exemption from VAT for land and buildings

The following Tax guidance note Produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:

  • Exemption from VAT for land and buildings
  • Why does exemption matter?
  • Basis in legislation
  • Sales and leases
  • Other interests in land
  • Rights over land
  • Licences to occupy land and the leasing or letting of immovable property
  • Fixtures and fittings

This Practice Note is about the scope of the VAT exemption for property transactions. In many cases the exemption is overridden by other provisions, and these are noted where relevant.

Why does exemption matter?

Exemption means that no VAT is chargeable, but that the landlord or seller cannot recover VAT on related costs. There may also be a requirement to repay to HMRC VAT that has previously been recovered.

Exemption is usually welcome if the buyer or tenant is a private individual, or a business or organisation that cannot recover VAT in full.

But exemption is generally undesirable in the context of commercial property. If VAT is charged, the buyer or tenant can usually recover it, while the seller or landlord can recover VAT that they themselves incur, so there is no overall VAT cost.

In this case there will, however, normally be an additional liability to stamp taxes—to stamp duty land tax (SDLT), in Scotland to land and buildings transaction tax (LBTT), or in Wales to land transaction tax (LTT)—since these are charged on the amount including VAT. VAT cash flow will also sometimes be an issue.

The exemption can be overridden in various ways, and the option to tax is specifically designed for this purpose. See Practice Note: The option to tax land. But exemption remains the default position, and