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Sam, Accountant
Category: Tax
Satisfied Customers: 14155
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Partnership (Trading Business) considering the purchase

Customer Question

Partnership (Trading Business) considering the purchase of a commercial property where
the seller has opted to tax (apply VAT).
First floor to be used as an office/storage for the main business.
Ground floor to be let as a retail shop, and obviously output tax will be charged on the rentals.
Two questions :
1) The business does possess other properties which are rented out, mostly residential,
but also a commercial unit/yard which is partially let to a tenant. VAT is not charged
upon rents since partnership has not opted to tax.
Will the purchase of the later property (being taxed) have any effect on the present letting, i.e. will that then also require an output tax charge. Basically asking if the option to tax relates to individual properties or to the business as a whole.
The partnership is registered for VAT (since 1992).
2) Because the input tax on the proposed purchase is quite considerable circa £50,000
it will create a repayment in the period of claim. Would this , coupled with the fact that
property rental is not the main business of the partnership cause a possible query or even rejection of the claim by HMRC.
Thanking you
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Thanks for your question
No - residential lets that are already owned stay free of VAT as does the commercial let - as these do not hold the option to tax - so this changes nothing at all.
Its acceptable that the repayment is created due to the input tax being high, and HMRC would expect this on the fact this is relevant to the purchase of the property.