Purchasing a Commercial Property; Seller Opted to Tax for VAT and Buyer is not VAT Registered

The Commercial property in question @£200.000 will have VAT added to the purchase price, thus £240.000 It is an investment property with a sitting tenant and therefore if the purchaser was VAT Registered (TOGC) the amount payable would be £200.000. No VAT would be charged. Question I cannot find any clauses in HMRC VAT regulations that disallow a none VAT Registered person or entity (purchaser is a Pension Scheme) from Registering for VAT and claiming the £40.000, in the above example, then claiming the VAT back and De Registering. This has the same affect as the TOGC in actuality as no VAT is actually paid above or in this scenario above no VAT would stay with HMRC. My client does not want to Register for VAT in a TOGC context as the Pension Scheme have another property where the buyer did not opt to tax VAT and hence no VAT is charged to the tenant on the rent. Thank you for reading this my thread; I do not know if the Registration and De Registration scenario would flag as a concern to HMRC. The driver is a pragmatic mirroring of TOGC where the purchaser is not VAT Registered.

For it to be a ToGC, the buyer must be in the same position as the seller (VAT registered/opted to tax property), else if conditions for ToGC not met, then it is not a ToGC and the property is sold to buyer on a plus VAT basis. See section 11 and 11.2 https://www.gov.uk/guidance/opting-to-tax-land-and-buildings-notice-742a#transfer-of-a-business-as-a-going-concern On what basis will the buyer/pension fund be reclaiming VAT? The right to reclaim VAT is on the basis you are making taxable supplies. Rent is an exempt supply unless the buyer "opts to tax" the property. So without an option to tax, you cannot charge VAT on rent and if you are not charging VAT on rent, then you cannot reclaim the £40k input tax. Once the property is opted to tax, the buyer is then making a taxable sale and input tax (£40k) can be reclaimed, but when you then deregister, you would have to declare output tax on the market value of the property. See section 7.1 - 7.2 https://www.gov.uk/government/publications/vat-notice-70011-cancelling-your-registration/vat-notice-70011-cancelling-your-registration#business-assets-and-stock-on-hand

Very many thanks Jay Much appreciated I’ll scour the final para sections Peter

Hi,

If a company sells a property with an option to tax on the property then VAT would normally have to be charged. If the property is sold to a VAT registered business where the TOGC rules are met regarding the sale of a property rental supply then this supply would be outside the scope of VAT. Please see the guidance below:

Transfer a property business as a TOGC

If the buyer registered for VAT, placed an option to tax on the property and treated the supply as a TOGC then the option to tax would remain on the property for the buyer as the lifetime of an option to tax is 20 years. This would mean that the company would not be able to deregister as they would be continuing to make taxable supplies with this option to tax in place and even if they stopped using the property to make taxable supplies then they would be making a deemed supply of the property at the point of deregistration and would need to account for VAT on the  property’s current market value. You can see information here:

Business assets and stock on hand

Thank you.

Very many thanks I now fully understand the situation and no more posta will be necessary A great service by the way Regards P Szuszko