VAT on commercial property
Checking a Property's VAT Status Before Exchange
PropertyVAT Team · Updated · 3 min read
The VAT position is cheap to establish early and expensive to discover late. It should be one of the first enquiries raised, not a detail confirmed in the week before completion.
Why written confirmation matters
Three things that are not a VAT position:
- The agent's particulars
- "There's no VAT on this one" in a phone call
- An assumption that commercial property is exempt
The last is usually right, which is exactly the problem. Most second-hand commercial property genuinely is exempt, so the assumption survives unchallenged until it meets a property where it does not hold.
The enquiries to raise
Through your solicitor, in writing, before exchange:
- Has the seller, or any previous owner, opted to tax the property or any part of it?
- If so, please provide the notification and HMRC's acknowledgement.
- When did the option take effect?
- Is the building new — completed within approximately the last three years?
- Is the sale intended to be treated as a transfer of a going concern?
- If a TOGC is intended, what are the conditions, and what happens if it fails?
- Is the price quoted inclusive or exclusive of VAT?
- Where the property is mixed use, how is the consideration apportioned?
Question two is the one that distinguishes a real answer from a recollection.
What to do with the answers
| Answer | What it means | Your next step |
|---|---|---|
| Opted, evidenced | VAT at 20% is payable | Register for VAT; arrange funding; budget SDLT on the inclusive figure |
| Not opted, confirmed in writing | No VAT on the purchase | Confirm the building is not new |
| New building | VAT applies regardless of any option | As for opted |
| TOGC intended | No VAT if conditions are met | Opt to tax and notify in time; plan for failure |
| "VAT if applicable" | Nothing has been established | Push for a definite position before exchange |
| No reply | Treat as unresolved | Do not exchange on an open VAT position |
The historic option problem
Options to tax last around 20 years and attach to the property, not to the current owner's memory of it.
A company that acquired a building through a group reorganisation, or that has owned it since well before the current finance team arrived, may genuinely not know an option exists. It surfaces when their solicitor checks the files.
This is why you ask for the paperwork rather than the answer. A seller who can produce the notification knows their position. A seller who cannot may simply not have looked.
Timing: work backwards
The reason to do this early is that fixing a VAT problem takes weeks:
- VAT registration for the buying entity — weeks, with possible HMRC follow-up questions
- An option to tax, where a TOGC depends on it — notification within 30 days of the decision, and acknowledgement is not instant
Neither compresses. A VAT issue found at heads of terms is administrative. The same issue found a fortnight before completion is a problem.
The cost of getting it wrong
If VAT applies and you have not planned for it:
- You need 20% of the price in additional funds on completion day
- You pay stamp duty on the VAT-inclusive consideration, and that extra SDLT is never recoverable
- If the buying entity was not VAT registered at the point of purchase, the VAT itself may not be recoverable either
The first is a funding problem. The third is a permanent loss, and it is entirely avoidable by asking early.
This guide is general information, not legal or tax advice. Always have a solicitor raise formal enquiries and take VAT advice before exchange.
Frequently asked questions
- Is the agent's particulars a reliable source?
- No. Marketing material is not a contractual statement and is frequently wrong on VAT. The contract and the seller's written replies to enquiries are what govern.
- What if the seller says there is no option to tax?
- Ask them to confirm it in writing through their solicitor. An unopted property genuinely carries no VAT, but you want that position recorded rather than remembered.
- Can a property be opted without the seller realising?
- It happens, particularly where a company has owned a property for a long time or acquired it through a group reorganisation. Historic options can surface late, which is why written confirmation matters.
- How late is too late to check?
- Anything after exchange is too late to change your position. The practical deadline is well before that, because fixing a VAT problem means VAT registration and possibly an option to tax, both of which take weeks.
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