Option to tax

[pjclar02]

Client operates as a limited company beneath the VAT registration threshold. Client also holds a commercial investment property personally - this building is opted to tax, as VAT was recovered when the property was purchased. So client is registered for VAT personally to account for VAT on the rental income


Client wishes to disincorporate the limited company and continue the business as a sole trader, but is concerned about the VAT implications. My understanding is that the option to tax can remain, such that the input VAT recovered on purchase does not become repayable, but the client could deregister for VAT personally as the rental income, plus the self employment income combined, would not exceed the VAT threshold.


Can anyone confirm that this is correct?

[spidersong]

I doubt anyone can confirm it's correct as it's not.

If you have opted property, even where you don't revoke the option, then it's a deemed supply on deregistration if you recovered VAT on the purchase:

See section 7.4 of Notice 700/11 VAT Deregistration:
"If then
you will be keeping the land or property, and
you claimed input tax when you bought it you will be making a deemed supply of it at the time of deregistration
this means you will need to account for VAT on the land or property’s current market value."
(Apologies if the formatting goes shonky I can't put a table in here)

So if the client deregisters as below the threshold they'll still have to pay VAT against the current market value of the building when deregistering, since they recovered VAT upon its purchase.

[les35]

I agree.