Recovering input tax on land and property transactions

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

  • Recovering input tax on land and property transactions
  • Rules on reclaiming VAT
  • Can a business recover VAT incurred before opting to tax?
  • What happens if the business changes its intention?
  • Abortive or speculative costs
  • Input tax incurred before VAT registering
  • Capital goods scheme
  • Conclusion

A business' ability to recover VAT incurred on costs associated with land and property will depend upon a number of factors, which are explained below.

Rules on reclaiming VAT

The following provides an overview of the main rules:

Notice 742A ; VATLP22550
  • if the business makes supplies of land and property that are liable to VAT, it will be able to recover all of the VAT incurred on costs directly associated with the land and buildings
  • if the business makes exempt supplies of land and buildings, it will not be entitled to recover any VAT incurred on costs associated with the transaction
  • if the business makes supplies of land and buildings which are liable to VAT and exempt from VAT, it will only be able to recover the VAT incurred on costs associated with the taxable land and property transactions. The business will be required to undertake a partial exemption calculation in order to determine the recoverable VAT incurred on costs. Please see the Partial exemption overview guidance note for more information.
Can a business recover VAT incurred before opting to tax?

The following provides an overview of when VAT can be recovered before a business opted to tax.

Taxable supplies of land and buildings

Certain supplies of 'new' land and property are automatically liable to VAT. Please see the Supplies liable to VAT at the standard rate guidance note. Any VAT incurred on costs associated with supplies of taxable land and property will be recoverable in full.

However, many supplies of land and property are exempt from VAT and will only become liable to VAT if the supplier opts to tax. A business can only recover VAT on costs if it

More on Option to tax: