VAT on property

There are multiple VAT issues that arise in a property context. For a checklist-style summary of the key VAT issues to consider when undertaking a property transaction, see: VAT on property transactions—checklist.

The default position is that most supplies of interests in or rights over land and buildings (including freehold sales and leasing) are exempt from VAT, but there are many exceptions.

The effect of making an exempt supply of land is that no VAT is payable, but the person making the supply cannot usually recover any of the VAT (the input tax) incurred on their expenses, such as in relation to building work and fees.

In practice, the exceptions mean that most dealings in commercial property are not, in fact, exempt, and that exemption is only really the norm for lettings of residential property. Since exemption is not always a desirable result, active steps may need to be taken to fall outside it.

Where exemption applies, it will cover the sale price or premium, any rent and anything else paid by way of consideration for the interest in land. This generally extends to service charges