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Tax – VAT

Option to tax – change to residential use

Under the old regime, a sale of a commercial building to a buyer who intended to convert it to residential use, or into a residential home, would mean that (unless the parties expressly agreed otherwise) the seller’s option to tax was disapplied, and thus the sale became an exempt supply.

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Option to tax – cooling-off period

Having opted to tax, a property owner may want to revoke that option if it turns out to be more advantageous to keep the property exempt (even though this means it will incur irrecoverable input tax). For example, by revoking the option, L may be able to obtain a higher rental return from a T with an exempt business (such as a bank). This will be beneficial if the increased rent will exceed the landlord’s irrecoverable VAT.

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Commercial buildings – new

The new edition of the Conveyancing Handbook has a useful checklist of the main points to consider when acting for the buyer on a freehold purchase of a new commercial building. In particular, if the contract requires the buyer to pay VAT, he will want to be certain that VAT is chargeable (and have evidence to establish whether or not there is a mandatory charge to VAT on a subsequent sale).

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Roof space – zero-rated

It has been held that the grant of lease following conversion of the empty roof space of a block of flats into a new self-contained flat will be zero-rated, because the roof space is a ‘non-residential’ part of the building.

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Housebuilder – letting stock

As the residential property market slows, it is becoming increasingly common for property developers to let out their newly completed properties whilst waiting for a recovery in property prices. Whilst this may be superficially attractive (because of the cashflow benefits), there are real VAT risks.

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Land – option to tax

A reminder of how the new VAT option to tax regime (introduced in June) works. It is similar to the old ‘election to waive exemption’ regime but there are differences. Key points:

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Solicitors – disbursements

The Law Society has issued an updated practice note covering VAT on disbursements.

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Retention of title – repossessions

Retention of title clauses will typically allow a seller to reclaim goods if the buyer fails to pay for them.

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