Vat And Commercial Property Notes

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VAT and Commercial Property VAT Sensitive = businesses that only make exempt supplies (banks, building societies, insurance companies) therefore have no output tax to offset their input tax.

Definition

Tax rate

Outcome for Seller/Landlord

Outcome for Buyer/Tenant If tax sensitive, may be reluctant to purchase.

NEW

OLD P62 Civil Lit

Completed within 3 years prior to sale

Completed over 3 years prior to sale

Standard rate =
20%

Will be able to recover input tax incurred in developing the site. If using SCPC, need to incorporate condition A1 in Part 2 SCPC to charge VAT in addition to the agreed purchase price (SCPC 1.1.4 - sale doesn't constitute a VAT supply)

1. Seller has option of recovering input tax on repair or refurbishment.

2. The problem with opting to tax is that VAT would have to be charged on the purchase price on the sale and if buyer is a Exempt, Co., it may not be able to recover any VAT (because it does but not make VAT able supplies in the course of its business). option to 3. The buyer might thus object to seller opting to tax or seek a tax reduction in the purchase price to compensate it for the irrecoverable VAT.

4. The seller will have to weigh up the benefit of recovering the refurbishment VAT against the potential loss of sale proceeds (or even the sale itself).

5. If using SCPC, need to incorporate condition A1 in Part 2 SCPC to charge VAT in addition to the agreed purchase price (SCPC 1.1.4 - sale does not constitute a supply for VAT purposes)

If not tax sensitive, can offset the input tax paid on purchase with their own output tax. NB - paying VAT in addition to purchase price may buyer's financial arrangements.

If tax sensitive, may be reluctant to purchase if option to tax is exercised Should try and negotiate provision that Seller will not opt to charge VAT before completion. If Seller is charging VAT, should negotiate that the price be inclusive of VAT

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