Buying a Commercial premises: VAT?

[LDN]

Hi, I wonder if anyone has any experience of this.

I'm looking at buying a commercial office building. Throughout the whole process of viewing and bartering; I was led to believe (agent said he believed there was no VAT) that the price we would agree on would be the price paid... howver, onc agreeing to a price: a lot less than the seller had wanted - apparently there is now VAT on top.

Am I right in thinking that; perhaps, he was bartering over a figure that he deemed suitable where he woul pay his VAT but has now agreed to a loss less on the basis that he will now add the VAT on top...

It's all new to me.

As well, if I buy this place, is it worth becoming VAT registered... or setting up a LTD company and make that VAT registered; to purchase the property. Surely this is the best way to do it - however, what is the downside? I can only see that - I will have to add VAT onto any rented areas (will use most for myself) and if I ever sell, the fact that VAT will have to be paid will limit the audience.

Am I on the right track with all of this? I have emailed / rang my accountant but he said he'll get back to me and I want as much info as I can digest.

[Jobbo]

By default, a commercial property will be VAT exempt. However, an owner can opt to waive the exemption (aka a VAT election); that might happen if he wants to recover VAT on maintenance expenditure, for instance. So you can never be sure one way or the other until you see the relevant paperwork, or getting a contractual confirmation that it's not elected.

Do you yet know for sure either way? You'd need to take your accountant's advice on whether or not it's worth becoming VAT registered (and whether you could reclaim any or all of the VAT if so), but if you don't and the building is subject to VAT then it's basically 20% extra on top of the price for nothing.

Also bear in mind that Stamp Duty Land Tax is based on the price+VAT, so check that carefully; if it crosses an SDLT threshold it could be a nasty extra expense.

I should add that the seller gets no benefit from charging VAT on the price, so I don't think that necessarily has any bearing on your negotiations. If you become VAT registered, you don't necessarily have to waive the VAT exemption yourself (it doesn't transfer with the property) so you could potentially let it yourself without VAT and not charge VAT when you sell.

Edited by Jobbo on Monday 23 June 16:05

[LDN]

Jobbo said:

By default, a commercial property will be VAT exempt. However, an owner can opt to waive the exemption (aka a VAT election); that might happen if he wants to recover VAT on maintenance expenditure, for instance. So you can never be sure one way or the other until you see the relevant paperwork, or getting a contractual confirmation that it's not elected.

Do you yet know for sure either way? You'd need to take your accountant's advice on whether or not it's worth becoming VAT registered (and whether you could reclaim any or all of the VAT if so), but if you don't and the building is subject to VAT then it's basically 20% extra on top of the price for nothing.

Also bear in mind that Stamp Duty Land Tax is based on the price+VAT, so check that carefully; if it crosses an SDLT threshold it could be a nasty extra expense.

I should add that the seller gets no benefit from charging VAT on the price, so I don't think that necessarily has any bearing on your negotiations. If you become VAT registered, you don't necessarily have to waive the VAT exemption yourself (it doesn't transfer with the property) so you could potentially let it yourself without VAT and not charge VAT when you sell.

Edited by Jobbo on Monday 23 June 16:05

Thank you! All noted.

The property is subject to VAT; I have had that confirmed. The price is £190,000 + VAT. I really wanted to buy it as a personal investment and so didn;t really want to get into the whole VAT thing but... like you say, I'll be paying 20% on top for nothing. As a result, I'd be willing to go and set up a co. and get it VAT registered and then purchase the property through that company... is this the normal way that it'd be done?

[Jobbo]

There is no normal way really - speak to an accountant to work out what suits you best. Why bother with the red tape of a company if you could buy it more simply in your own name?

You may not be able to recover the VAT anyway, in which case registering for VAT (whether in your name or if you bought it into a company) may be pointless. I'd very carefully consider whether this is the right property, since it's going to cost you 20% more than you thought. Plus a few hundred quid more in stamp duty etc.

[LDN]

Jobbo said:

There is no normal way really - speak to an accountant to work out what suits you best. Why bother with the red tape of a company if you could buy it more simply in your own name?

You may not be able to recover the VAT anyway, in which case registering for VAT (whether in your name or if you bought it into a company) may be pointless. I'd very carefully consider whether this is the right property, since it's going to cost you 20% more than you thought. Plus a few hundred quid more in stamp duty etc.

Thank you again. The issue is that the property is perfect and so I need to find a way... I wonder if it might be appropriate to offer to split the difference with regard VAT. For instance: offer £210,000 (including) VAT whereby; we both pay around half what the VAT would have been on a £190,000 sale...

[wattsm666]

Are you going to rent it out? Go and speak to an accountant, it will save a load of grief.

[LDN]

wattsm666 said:

Are you going to rent it out? Go and speak to an accountant, it will save a load of grief.

I'm going to use it for myself as it stands; yes will be having a discussion with an accountant tomorrow.