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VAT, SDLT and Capital Allowances

Are you buying, selling or renting commercial property? Have you considered the role of VAT, SDLT and Capital Allowances?

Are you buying, selling or renting commercial property? Have you considered the role of VAT, SDLT and Capital Allowances?

It is said that the only things in life that are certain are death and taxes and it has to be said that when it comes to property, governments have been very creative at how they can raise money from property ownership.  This note concentrates on two types of tax that apply to the buying and selling or renting of property and a tax allowance which tends not to be taken as seriously as it might.

Value Added Tax (VAT)

As a starting point property is exempt from being subject to VAT.  If this were not the case then the sale of any property would potentially be increased by the rate of VAT (currently 20%).  Being exempt from VAT can have its drawbacks however.  For example a property investor who makes only supplies that are exempt for VAT purposes will be restricted in the amount of VAT it will be able to reclaim from HMRC whereas another business with similar turnover will be in a better financial position by being able to recover VAT it has paid out against the VAT it collects on its sales and lettings.

The VAT system, therefore, allows an owner of commercial property to choose to treat transactions as standard-rated instead of being exempt, so that VAT is chargeable and VAT on costs is recoverable. This is known as the “option to tax”. HMRC has estimated that more than 75% of commercial property interests across the UK are now subject to an option to tax.

For more information on the option to tax please see our VAT on Property Transactions page.

For more information on VAT, SDLT and Capital Allowances...

Please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 for a free discussion or email natalie.hopkins@everymanlegal.com

Commercial Stamp Duty Land Tax (SDLT)

This is a tax charged by the government directly on property transactions.  SDLT is a tax on any “acquisition” of a “chargeable interest” in land other than an “exempt transaction”. A transaction may be notifiable even if no documents exist. An acquisition includes:

  • a purchase of commercial property;
  • the grant of a commercial lease;
  • the surrender or release of a chargeable interest;
  • the variation of a chargeable interest.

For more information on commercial SDLT, please see our Commercial Stamp Duty Land Tax (SDLT) page.

Capital Allowances

Complicating the tax situation still further is the availability or otherwise of capital allowances.  Claiming these when appropriate can save a buyer of commercial property many thousands of pounds in tax.  They can also be passed onto future buyers. Failure to deal with capital allowances in the contract to buy a property may result in the buyer being unable to claim capital allowances or pass capital allowances on to a future buyer, which may reduce the property’s value.

Capital allowances can be contentious issue so both the seller and buyer should give full consideration to the issue. Even if the buyer is not entitled to claim, or does not intend claiming capital allowances, a buyer should still seek to obtain information about the capital allowances history of the property. Failure to do so could prevent a future buyer from claiming allowances and could reduce the price that a future buyer is prepared to pay for the property.

For more information on capital allowances please see our Capital Allowances page.

Our dedicated team of solicitors, based in Witney, Oxfordshire, would be happy to answer your questions.

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