VAT on property sales – saving of £131,000

The client

We were instructed by an accountant we often work with who was concerned that one of his own clients was being given the wrong VAT advice by his solicitor. The client had owned a commercial property for some years, and five years previously it had been let out on a VAT-exempt basis. 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 was a very short period of time 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 £131,000 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.

Our advice

David Miller of The VAT People immediately realised that this procedure of notifying HMRC 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 normally takes in excess of 30 days – impossible in the short time before the sale - and without permission, the option to tax would have been invalid, making the £131,000 irrecoverable.

We were able to fast track the process and completed the correct procedure with Customs in a few days. This enabled the sale to go ahead, and protected the refund of £131,000. 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 – and this can take more than 30 days to receive.

Further advice

Contact us

If you are proceeding with the sale or purchase of a property and want expert advice on your VAT liabilities and options, speak to The VAT People. Contact us by calling 0161 477 6600, or fill in our online contact form with your query.

Useful Information

Watch Our Videos

Get the vital information you need quickly and easily by watching one of our guidance videos - topics include VAT assessments and penalties, VAT for charities, and maximising VAT recovery.

View Videos