VAT Reclaim on Commercial Property Purchase for Newly VAT-Registered Company

I am interested in purchasing a newly built commercial property on a 999-year lease valued at £100,000. I understand that as it is a new build, I need to pay £100,000 plus VAT, which amounts to £20,000. Currently, my company is not VAT-registered. If I register my company for VAT and purchase the property under the company's name, will I be able to reclaim the £20,000 VAT even if my company does not generate VATable sales? Thank you.

Depends what you intend to do with the property. If you intend to rent it to tenants, then you may need to consider opting to tax the property https://www.gov.uk/guidance/opting-to-tax-land-and-buildings-notice-742a If you intend to use it/occupy it yourself with your own business (the same business which owns the property) then no requirement for an option to tax. Rent is exempt, so if renting to a tenant(s), you can't charge VAT and if you are not charging VAT you cannot reclaim VAT. If you opt to tax the property, rent turns from being exempt to standard rated, you can then reclaim VAT on the purchase. But you should seek professional advice and read through the Notice in detail because there is a lot to go wrong here and an option to tax is irrevocable for 20 years once set so you need to be clear at the start....and that depends on who you plan to rent to, new start-up tenants aren't necessarily going to be VAT registered so 20% VAT on rent might price them out of the market, but if your market is high-end then maybe not matter so much. As it will be a first VAT registration and a large refund, HMRC will enquire into this VAT return once you file it, so it is essential you are clear as to your intention with the property.

Hi,

If you purchase a property with VAT on the purchase price then you can treat this as input tax if you incur this VAT in the course of your business and you meet the conditions below:

Introduction to input tax

Thank you.

Thank you for your reply. I will be using the property myself. I will purchase the property under my company and will actively use it for business purposes related to my company. However, I am unsure if I will exceed the VAT threshold of £85,000 in the first year. If I do not exceed this threshold, can I still claim the £20,000 VAT refund I will pay for the property? Or can I retain my VAT entitlement and claim the refund in subsequent years? I am concerned about not being able to reclaim the VAT as the amount I will pay is very high.

Hi.
You do not need to be trading over the threshold in order to register for VAT and treat the VAT on your purchases as input tax.
Please see the guidance below, specifically section 3.9:
Who should register for VAT (VAT Notice 700/1)
If you register for VAT at a later time then there is an entitlement to recover the VAT as input tax prior to your VAT registration date subject to the following conditions:
Input tax when VAT paid on goods and services received before VAT registration