VAT on purchase of residential property

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A charity that I do some voluntary work for is in the process of purchasing a residential property. The property will be used wholly for charitable purposes.

The price was agreed and we were due to exchange contracts but the vendor has now said that there's an additional 20% VAT to pay. The vendor used to be part of the local Council but was privatised about 20+years ago.

Am i right in thinking that there is no VAT on the sale of residential properties? The property is basically a large terraced house that was being used by the Company as offices. They then relocated their offices elsewhere and the property became surplus to their requirements.

[wheelerc]

What does the charity's solicitor say?

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wheelerc said:

What does the charity's solicitor say?

Given that contracts have been exchanged I assume he’ll tell them to FRO but that conversation can’t take place until Monday

[2HFL]

You mention it’s previously been used as offices, which probably necessitated a change of use (from C3 to B1) and, as a commercial premises, it’s entirely possible that it could have been elected for VAT purposes.

I’d suggest checking on your local planning portal for starters to see if planning consent of this nature was ever granted, otherwise I would have expected it to come up during conveyancing or from the agent selling it (assuming they’ve done their due diligence)….

[soxboy]

Although the property may look like a house, as above if it has until now been used as offices then it will still be classed as offices and therefore a commercial property. Most commercial properties previously owned by local authorities are elected for Vat.

As suggested above, I would check the local authority planning portal to see what the property’s planning history is. Whereabouts is it? Happy to look it up if you’re not familiar with looking for this sort of thing.

Was it being sold as offices? If it was being sold by an agent they should have been upfront in saying this from when you were first interested (although there is an assumption that commercial properties are Vat elected and thus it may be buried in the small print).

Edited by soxboy on Saturday 30th September 08:24

[PurpleFox]

You are right in thinking that there is no vat on residential properties but it sounds like this isn't a residential property......

It might look like one if it's a regular house in a terrace but it depends on its use class and whether it has been elected for vat. Not all commercial properties are subject to vat, depends on a number of things.

[2HFL]

Another quick way of checking if the building has commercial use (albeit this isn’t always up to date) would be to find out if it has any business rates liability, which you can ascertain on the Valuation Office Agency website:

https://www.gov.uk/find-business-rates

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2HFL said:

Another quick way of checking if the building has commercial use (albeit this isn’t always up to date) would be to find out if it has any business rates liability, which you can ascertain on the Valuation Office Agency website:

https://www.gov.uk/find-business-rates

Thanks. Unfortunately the link doesn't appear to be working. I'll try later

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soxboy said:

Although the property may look like a house, as above if it has until now been used as offices then it will still be classed as offices and therefore a commercial property. Most commercial properties previously owned by local authorities are elected for Vat.

As suggested above, I would check the local authority planning portal to see what the property’s planning history is. Whereabouts is it? Happy to look it up if you’re not familiar with looking for this sort of thing.

Was it being sold as offices? If it was being sold by an agent they should have been upfront in saying this from when you were first interested (although there is an assumption that commercial properties are Vat elected and thus it may be buried in the small print).

Edited by soxboy on Saturday 30th September 08:24

if a property isn't elected for VAT at the time of construction can it be "elected" later?

Without wishing to go into too much detail there was a maintenance depot nearby and this place was purchased by the depot as basically a break room for the drivers and for staff starting / ending their shifts. I believe the ground floor has been knocked through to make one large seating area, there have been no changes to the upstairs.

Now that I think about it I have a feeling it wasn't on Rightmove or any of the EA websites. It was being sold by commercial Estate Agents...

[2HFL]

Countdown said:

soxboy said:

Although the property may look like a house, as above if it has until now been used as offices then it will still be classed as offices and therefore a commercial property. Most commercial properties previously owned by local authorities are elected for Vat.

As suggested above, I would check the local authority planning portal to see what the property’s planning history is. Whereabouts is it? Happy to look it up if you’re not familiar with looking for this sort of thing.

Was it being sold as offices? If it was being sold by an agent they should have been upfront in saying this from when you were first interested (although there is an assumption that commercial properties are Vat elected and thus it may be buried in the small print).

Edited by soxboy on Saturday 30th September 08:24

if a property isn't elected for VAT at the time of construction can it be "elected" later?

Without wishing to go into too much detail there was a maintenance depot nearby and this place was purchased by the depot as basically a break room for the drivers and for staff starting / ending their shifts. I believe the ground floor has been knocked through to make one large seating area, there have been no changes to the upstairs.

Now that I think about it I have a feeling it wasn't on Rightmove or any of the EA websites. It was being sold by commercial Estate Agents...

Yes, a commercial premises can be opted to tax (VAT elected) at any time, and it’s not straightforward to subsequently “de-elect it”.

In my experience (as a commercial agent) it’s done by property owners who are renovating or converting a building as it’s tax efficient (any VAT on costs can be reclaimed).

I strongly suspect, based on what you’ve said, that it does indeed have commercial use which is why the vendor is stating that VAT needs paying on top of any agreed sale price. A call to the agent may well confirm this, as I always ensure I know this before I list a property, due to the obvious implication it can have on a purchaser’s ability to proceed.

[PurpleFox]

Countdown said:

soxboy said:

Although the property may look like a house, as above if it has until now been used as offices then it will still be classed as offices and therefore a commercial property. Most commercial properties previously owned by local authorities are elected for Vat.

As suggested above, I would check the local authority planning portal to see what the property’s planning history is. Whereabouts is it? Happy to look it up if you’re not familiar with looking for this sort of thing.

Was it being sold as offices? If it was being sold by an agent they should have been upfront in saying this from when you were first interested (although there is an assumption that commercial properties are Vat elected and thus it may be buried in the small print).

Edited by soxboy on Saturday 30th September 08:24

if a property isn't elected for VAT at the time of construction can it be "elected" later

Yes it can.

Sounds like an interesting property.

Shame the agents are obviously a little clueless!

[MaxFromage]

It sounds like poor work by one or both solicitors. The option to tax can be disapplied in certain circumstances. Very easy to do if you meet the criteria:

https://www.gov.uk/government/publications/vat-cer...

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MaxFromage said:

It sounds like poor work by one or both solicitors. The option to tax can be disapplied in certain circumstances. Very easy to do if you meet the criteria:

https://www.gov.uk/government/publications/vat-cer...

Thanks Max.

Another question - given that we're a Charity do they HAVE to charge VAT? I know we're exempt from SDLT

[MaxFromage]

I did also mean to say that I believe there are also other criteria available for charities regarding the disapplication of the option to tax.

To be honest, we stay away from charities. Given VAT and charities is incredibly complicated, you need to get specific advice based on the current circumstances. Your accountant may be able to help, or if not have a VAT specialist they can use.

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2HFL said:

Another quick way of checking if the building has commercial use (albeit this isn’t always up to date) would be to find out if it has any business rates liability, which you can ascertain on the Valuation Office Agency website:

https://www.gov.uk/find-business-rates

I checked and It looks like it does have commercial use

However Google tells me that the "sale of a commercial property is usually exempt from VAT" so fingers crossed....

[soxboy]

Countdown said:

I checked and It looks like it does have commercial use

However Google tells me that the "sale of a commercial property is usually exempt from VAT" so fingers crossed....

Speaking as a commercial property surveyor I’m afraid to say that Google is wrong. The majority of commercial property in this country is elected for Vat, albeit it is normally smaller properties that are not elected.

As above, you can get it deselected but it is a palaver and might not help you in time for your purchase.

[2HFL]

Did anything further come to light on this?

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2HFL said:

Did anything further come to light on this?

It's all been resolved. Our Solicitor told them to take a long walk off a short pier. Neither their EA nor they had previously indicated that VAT was chargeable so if they HAD to account for VAT they would need to deduct it from the offer price.