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Acquisition of commercial property

Following on from last month’s article, VAT is one of the taxes you need to consider when purchasing a commercial property.

Overview of the acquisition of commercial property

Buying a commercial property could qualify as being a transfer of a business as a going concern (“TOGC”).  Here the purchase would be outside the scope of VAT and no VAT charged on the property.

What is a TOGC?

Normally, if you sold an asset held in your business, such as machinery or a laptop, you would have to charge the appropriate rate of VAT on the sale.

However, when all or part of a business is sold, the sale may qualify as a TOGC. In this case any assets held by the business, including commercial property, would not be subject to VAT.  So if you’re acquiring a property under these circumstances, you won’t be bearing any VAT on the cost of it.

Conditions which need to be met

The main conditions are, but not limited to:

  • Any assets being sold must be part of a sale of a viable business
  • All of the assets purchased must be used to carry on a similar business to that of the seller
  • The business sold must be capable of being operated separately
  • The purchaser must be or become a VAT registered business
  • There must be no significant breaks in the trading of the business or several consecutive sales of the same business
  • If the current owner of the property has already “opted to tax” the commercial property, then the purchaser must also “opt to tax” the building.

If the above conditions are satisfied, no VAT will need to be charged.

Option to tax

As discussed last month, generally the sale and purchase of commercial land and buildings are exempt-rated supplies for VAT purposes. Put simply, when a property has been “opted to tax”, any supplies related to the building will become vatable – relevant input VAT can be reclaimed on purchases and VAT will be chargeable on any income arising from the property.