VAT is very simple, VAT Input (paying VAT on goods or services purchased) and VAT output (charging VAT on goods or services provided).
A commercial property can be thought of as “goods or service”.
If a property is elected for VAT and the owner of the property is VAT registered, then the owner can charge VAT on the rent or services they charge to their tenants. In addition, if the owner of the property is charged VAT on goods and services they consume from a VAT registered supplier, such as building works, fittings etc, they can reclaim the VAT they have paid. When the owner of a VAT elected property comes to sell that property, the property is sold at the selling price + VAT.
80% of UK commercial property is elected for VAT
If a purchaser is buying a property which is elected for VAT and VAT is payable, then VAT at the prevailing rate of 20% is due on the combined purchase price and the stamp duty.
The VAT is paid by the purchaser to the vendor (and then to HMRC) as part of the completion process and as long as the property is correctly elected and the purchasing SPV is VAT registered, then the purchaser (or their nominated VAT agent) can immediately submit a VAT return to HMRC to have the VAT amount paid on the purchase price, rebated.
This process usually takes between 30-90 days and is handled directly or via the VAT agent. When HMRC processes the rebate, the funds are paid back directly or to the VAT agent, who then disburses the funds.
