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VAT in Property Transactions


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3 December 2009

VAT in Property Transactions

The issue of VAT will arise where the seller of the land is a VAT registered person or company.

Any purchaser of land should ask the seller whether it has made an election to waive the exemption to VAT in respect of the property. A VAT registered person or company can make an election by notification to HMRC.

In simple terms, the effect of an election is to turn a contract for the sale of land into a taxable 'supply' for VAT purposes. Where the election has been made, the seller will charge VAT at the standard rate, unless the property happens to be residential, in which case there will be a zero-rate tax.

If the property is commercial in nature, the buyer in order to reclaim the input tax will have to be registered for VAT. Buyers must note that they must pay the VAT on the purchase price to the seller on completion and the seller will account to HMRC for it. The buyer will then be able to reclaim that tax at the end of its current VAT quarter - this could be a few months after the completion date.

It must be noted that the Stamp Duty Land Tax is payable on the VAT inclusive transaction figure. For example, if a VAT registered land owner makes an election to tax in respect of a commercial property and then sells the property for &pound1m it will (from 1 January 2010) attract VAT of 17.5% or 175,000. If the Buyer is registered for VAT it may be able to recover the VAT input tax, but will pay SDLT on a total transaction value of 1,175,000 - ie 47,000.

Note: The tax legislation can be complicated and it is recommended that you consult a tax specialist who can advise on each specific transaction.

Inam Ali is a Solicitor at Lawdit specialising in commercial and intellectual property law and can be contacted at

About the Author

Lawdit Solicitors offer services and advice for litigation, commercial contracts, Intellectual Property and IT legal agreements. We are experts in commercial law with a heavy emphasis on Intellectual Property, Internet and e-commerce law. Lawdit is a member of the International Trademark Association, the Solicitors' Association of Higher Court Advocates and we are the appointed Solicitors to the largest webdesign association in the world, the United Kingdom Website Designers Association.

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Article Published/Sorted/Amended on Scopulus 2009-12-08 18:05:18 in Legal Articles

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