VQOTW: Sale of Trading Premises

My client, a small owner-managed company, purchased five-year-old freehold premises to trade from in June 2017. The total cost of the premises and refurbishment was 180K + VAT, which the company reclaimed in full in the 06/17 period, and the company has occupied it since for its engineering business. The business has always been fully taxable. 

Unfortunately, the director/shareholder is very ill and has taken the decision to close the company and dispose of the property. Please, could you advise whether any VAT needs to be repaid as it was only claimed a short while ago?

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A. The freehold sale of commercial property which is over three years old is exempt from VAT unless the vendor waives the exemption by opting to tax. For completeness, the freehold sale of a commercial property less than three years old is automatically standard-rated.

In certain circumstances where VAT has been recovered on a property purchase and then an exempt sale is made, a repayment of all or part of that VAT is required. These circumstances will vary depending on the facts of each case, but the main reasons are outlined below:

  1. If no taxable use is made of the property, and the first use is exempt within six years of the original recovery, clawback will apply;
  2. If taxable use is made but exempt supplies, other than the sale, are made within the same partial exemption longer period an adjustment may need to be made in HMRC’s favour at the end of that longer period, or
  3. Where the property purchase, plus any refurbishment cost is 250K (tax ex) or more, taking the property into the capital goods scheme (CGS) which has an adjustment term of ten years.

In your client’s case, the VAT was recoverable without any option to tax as it was occupied for the company’s own fully taxable purposes. If it is now sold VAT exempt, there will be no VAT to repay, as

  1. a) taxable use has been made of the property – so there will be no clawback;
  2. b) your client was fully taxable, and finally,
  3. c) the costs incurred were below the CGS threshold.

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If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.

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VAT Advice Consultant
0844 892 2470

Sally is the Team Leader of the VAT Advice and Consultancy team at Croner Taxwise. She has worked in VAT since 1990, including eight years spent with HMRC, both as an Assurance and Enquiries Officer involved in presenting seminars and business education. Since joining private practice in 1999, Sally has specialised in providing VAT technical advice to a variety of clients, ranging from small one-man bands to large multi-national corporations, on the full range of VAT technical matters.

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