A. It is correct that there are certain circumstances where the purchaser of a commercial property can dis-apply the vendor’s OTT, such as where the purchaser certifies that the building is intended for use as a dwelling or solely for a relevant residential purpose.
The purchaser should issue a certificate before the price for the grant is legally fixed (for example by exchange of contracts) in order for the vendor to treat the supply as exempt. Further details on the procedure can be found in Public Notice 742A Section 3.
Although your client acquired the property without VAT as a TOGC, the property may have been a capital goods scheme (CGS) item in the hands of the previous owner. The CGS applies to VAT bearing capital expenditure on land and buildings of £250,000 or more. If a capital item is transferred as part of a TOGC then the new owner assumes responsibility for adjustments of input tax required under the scheme for the remainder of the ten year adjustment period.
When acquiring a property as a TOGC the purchaser should therefore confirm with the vendor whether the property is covered by the scheme and details of the adjustments already made. If the purchaser remains fully taxable until the expiry of the ten year adjustment period, then no adjustments are required to be made. However, your client may find that he has to repay some of the input tax claimed by the original owner if they make an exempt supply of the property in question within the CGS adjustment period.
