VAT

Question 1

Is vat chargeable in residential transactions?

Answer 1

No

Question 2

In what circumstances must vat be chargeable in commercial transactions?

Answer 2

1. The property is less than three years old
2. The seller has exercised the option to tax

Question 3

Why opt to charge vat in a transaction?

Answer 3

In doing so, a seller can reclaim the VAT on any costs relating to the property e.g. refurbishment / professional costs.

Question 4

What are the three different possibilities when it comes to charging rent on property?

Answer 4

1. Purchase price EXCLUSIVE of vat & vat added on top
2. Purchase price INCLUSIVE of vat & vat cannot be added on top
3. Purchase price EXCLUSIVE of vat and vat can be added on top

Question 5

What is the position if a purchase price is EXCLUSIVE of vat & vat is added to the purchase price? Who is it suitable for?

Answer 5

• Purchase price plus vat
• Appropriate where vat MUST be charged (commercial property less than 3 years old)
• Appropriate where seller needs to opt to tax to recover tax paid (e.g. on refurbishment and / or professional costs) and the buyer IS vat registered

Question 6

What is the position if a purchase price is INCLUSIVE of vat & vat CANNOT added on top? Who is it suitable for?

Answer 6

• Purchase price includes vat
• Appropriate for old commercial building where seller has no vat to recover
• Appropriate where buyer is not vat registered
• Risk law may change between completion and purchase and supply of land that was not vatable becomes vatable. In such scenarios, seller would need to pay vat themselves from purchase price

Question 7

What is the position if a purchase price is EXCLUSIVE of vat & vat CAN added on top if the law changes? Who is it suitable for?

Answer 7

• Appropriate for old commercial building where seller has no vat to recover
• Appropriate where seller not willing to take risk law may change and buyer not vat registered or would rather not pay vat