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bigduckontax, Accountant
Category: Tax
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Client wishes to purchase property that has vat on the sale.

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Client wishes to purchase property that has vat on the sale.
his existing property company has a mixture of residential and commercial property but is not vat registered.
he wishes to buy the new property in his existing company, is this a wise decision because
1. would he have to charge vat on the old commercial property. after he becomes vat registered to recover the vat element on the new property.
2. can he become vat registered for the purpose of reclaiming the vat and then not charge vat on any of the commercial properties.
3. become vat registered and only charge vat on the new commercial property.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

He is in the unfortunate situation of having to pay 20% over the market rate just because the vendor has opted to tax.

Property is in general exempt from UK VAT. An owner can opt to charge VAT on rentals and sales on a property by property basis so were a registration made to recover the input tax only the VAT element proportional to exempt and non exempt trading activities could be reclaimed. That can be one of the big problems with exempt supplies. The business may have no or minimal VAT outputs and thus the proportion of exempt supplies will overwhelm the calculation all but extinguish any claims for input tax suffered. A further difficulty arises on ultimate sale. If VAT has been charged on rentals etc then the tax will also have to be levied on the selling price which may make disposal non-competitive.

For the purpose you suggest the game is probably not worth the candle.

I am so sorry to have to rain on your parade.

bigduckontax and other Tax Specialists are ready to help you

Thank you for your support.