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In the February 2010 Issue of Property Investor News
Opinion: VAT
Nobody concerned with the ownership, development, financing or management of property can afford to ignore VAT. The recent 15% rate 'holiday' is now over and rates have risen back to 17.5%. The first thing that a prudent landlord looking to purchase land or a property will ask of the vendor is whether there has been an election to waive the exemption to VAT in respect of the land or buildings etc that they are looking to buy.
A taxable supply for VAT purposes is the supply of goods or services made in the UK other than an exempt supply. An election to tax can be made by the vendor through notification to HMRC as long as they are a VAT-registered individual or company.
The effect of such an election in simple terms is to turn a contract for the sale of land/property into a taxable supply for VAT purposes, and where an election has been made, the sale of the land or property will be considered as such. The seller will charge VAT at the standard rate for commercial properties but if selling a residential property, the charge to tax is at the zero rate. This means that a commercial entity buying buy-to-let properties that are to be used as residences (as opposed to offices, say) will pay VAT at the zero rate even when there has been an election. However, a VAT-registered investor or landlord might be able to reclaim some VAT on service costs where they are not then passed on entirely to the occupier or tenant.
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