VAT on property disposals

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • VAT on property disposals
  • Overview
  • New commercial property
  • New build homes
  • Grant of the first major interest in a non-commercial building
  • First grant of major interest after non-residential conversion
  • Conversion of non-residential building for relevant housing associations
  • First grant of a major interest in a protected building
  • Transfers of going concerns

In principle, property disposals are exempt from VAT. No VAT can be charged on the disposal of the property, although VAT cannot be reclaimed on costs associated with that property either (subject to the partial exemption de minimis limit).

This guidance note is intended to give provide an overview of the VAT considerations on property disposals. A good summary can also be found in the Overview of VAT and property issues guidance note (subscription sensitive).

See also the Summary of the VAT liability of construction services guidance note (subscription sensitive). That guidance note contains links to all the other relevant notes in relation to construction services, broken down by type of supply. Therefore it is a good starting point for a non-specialist.

Overview

For commercial property an election can be made to waive the VAT exemption, also more commonly known as opting to tax. This means that supplies in connection with that property, made by the party who has entered into the option, become standard-rated (and thus the VAT can then be reclaimed on costs associated with that property). This means that VAT would need to be charged on the rent and on the disposal proceeds. The option to tax is discussed further in the VAT on property acquisitions guidance note.

A number of property transactions have a different treatment for VAT purposes. These are:

  • new build residential properties
  • new non-residential properties
  • grant of the first major interest in a non-residential conversion
  • grant of the first major interest in a substantially reconstructed protected building
  • renovation or alteration of a empty residential property
  • conversion of a property to an alternative residential use
  • transfer of land property as part of a transfer of a business as a

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