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VAT - option to tax property

VAT – option to tax property

25 January 2024

Special VAT rules, called the option to tax, let businesses standard rate non-residential properties, providing benefits like VAT recovery on costs. Subsequent property transactions incur VAT, impacting non-recoverable costs for some buyers. Revoking the option is limited, requiring careful consideration.

Special VAT rules enable businesses to choose the standard rate for supplying most non-residential and commercial land and buildings (known as the option to tax). The person opting to tax will subject subsequent supplies to VAT at the standard rate.

Converting the treatment of VAT-exempt land and buildings to subject them to VAT offers numerous benefits. The key advantage is that the person opting to tax can recover VAT on costs associated with the property, including its purchase and refurbishment, subject to usual rules. Exercising an option to tax doesn’t require land ownership.

Any subsequent sale or rental of the property will incur VAT. While this isn’t usually problematic for purchasers or tenants who can recover the charged VAT, it becomes an additional, non-recoverable cost for those not VAT registered or not fully taxable, such as banks. Revoking an option to tax is only possible under limited circumstances, highlighting the importance of careful consideration.

Source: HM Revenue & Customs Mon, 22 Jan 2024 00:00:00 +0100

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