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Case Study: VAT Advice on Property Sale Delivers £131k Saving

The client

The VAT People team was approached by an accountant we often work with over concerns that one of his clients, a commercial property owner, was being given the wrong VAT advice by his solicitor.

The client in question was planning to sell a property he had owned for several years, which had been let out for the previous five years to a tenant on a rent-free, VAT-exempt basis. During this time, the tenant had spent £750,000 on maintaining and improving the property.

Because the tenant needed to recover the monies spent, they raised an invoice to the owner for the value of improvements to the property, resulting in a VAT bill of £130,000. To recover this, it became necessary for the property owner to tax the sale, which was going through very quickly, leaving only a short period of time in which details could be finalised.

Our advice

The client had initially been advised by his solicitor that it was best to simply notify HM Revenue & Customs of the option; however, after consulting the experts at The VAT People, it was quickly noted that this could be a costly mistake.

Our highly experienced director David Miller immediately realised that written permission would be required before the owner could notify its option to tax, due to the fact that exempt supplies had been made previously. This process normally takes more than 30 days - an impossible timescale, given the imminent sale deadline.

Without receiving this permission from HMRC, the option to tax would have been invalid, making the £131,000 irrecoverable.

A successful outcome

To resolve the problem, our team was able to fast-track the process and complete the correct procedure with HMRC in just a few days. This enabled the sale to go ahead, and protected the refund of £131,000.

This underlines the importance of being aware of the length of the processes involved when obtaining permission to charge for VAT on a property sale where exempt supplies have been involved. It also highlights how vital it is to seek advice on VAT from qualified experts with specialist expertise in this area of law.

Get in touch

If you or a client requires advice on your VAT options and obligations during a property sale, give our free VAT helpline a call. One of our expert consultants will be happy to offer you a free initial discussion on how to handle the entire process as cost-effectively as possible, with a fee only being charged once we have agreed to work together.

Call us now on 0333 3638 012, or fill out an online enquiry form and a member of the team will get back to you.

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