Commercial property transaction
We got a call from an accountancy colleague of ours who was concerned that one of his clients was being badly advised by his solicitors – that call which was made “just as a check” saved the client £131,000.
The situation was that the client had owned a commercial property for a number of years. Five years previously it had been let on a VAT-exempt basis. However for the five years running up to the sale it had been let to a tenant rent-free – however the tenant had spent £750k on maintaining and improving the property.
The sale of the property was going through very quickly and there were literally only a few days in which the details of the sale could be finalised. The tenant needed to recover their monies spent and therefore had to raise an invoice to the owner for the value of improvements to the property.
In order to recover the £131K VAT on the invoice raised by the tenant the vendor needed to opt to tax the sale and his solicitors advised him that the correct thing to do was just to notify HMRC of the option. However David Miller of The VAT People immediately realised that this procedure was flawed due to the fact that as exempt supplies had been made previously, written permission was required before the owner could notify its option to tax. This would normally take in excess of 30 days and without permission, the option to tax would have been invalid and thus the £131K irrecoverable.
We managed to speed the process up and completed the correct procedure with Customs in a few days and has now enabled the sale to go ahead with only a minor delay whilst protecting the refund of the £131k VAT.
If you are charging VAT on a property sale be aware that where exempt supplies of the property have been made previously, written permission from Customs may be required which does take time. Plan early and give yourself plenty of time to get written permission if this is necessary as last-minute glitches can be costly.
