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Clarke & Son Blog​

Commercial Property – Buyers Be Aware of the Tax on Tax!

Commercial Property

As a general rule, the sale of a commercial property is exempt from VAT which means that a Buyer does not have to pay VAT on the purchase price. This is subject to change if the Landlord has made a VAT election, in which case the sale price will attract VAT. There is a further exception that if the sale is a transfer of a going concern (TOGC) generally where the property is being purchased subject to an existing tenancy then VAT would not be payable provided that the Buyer itself makes a VAT election prior to completion of the matter.

So what if VAT is going to be payable on the price. When the Government introduced the new stamp duty land tax (SDLT) regulations many years ago, they saw an opportunity of increasing revenues by creating a new tax on a tax!  Where a property is subject to VAT then SDLT is payable not just on the purchase price but also on the VAT charged on it. This can significantly increase the SDLT for example on a purchase of a commercial property for £500,000, where there is no VAT payable the SDLT would be £14,500, however with VAT on the price the SDLT would be £19,500. At £1m, the additional SDLT payable would be £10,000. There could also be an unanticipated SDLT uplift where the sale price is around the £250,000 mark due to the increase in percentage of SDLT payable above that level from 2% to 5%. If VAT was payable taking the total price from £250,000 to £300,000 that would see an increase of SDLT from £2,000 to £4,500!

It may be that you are intent on buying a particular property and are happy to take on the additional SDLT, but it is important to be aware of the VAT situation at the outset when calculating the SDLT costs particularly where the sale is not free of VAT or VAT is payable and the matter is not going to be treated as a TOGC.

If you need any advice on making the right decision for your business, feel free to contact us by email at mail@clarkeandson.co.uk or by phone on 01256 320555, asking for our commercial property team.

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