Where Taxpayers and Advisers Meet

VAT on land purchase

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Joined: Wed Aug 06, 2008 3:10 pm

Postby prince75 » Fri Jan 07, 2005 3:54 am

I am VAT registered sole trader. I purchased some land on which I was charged VAT. I am going to incorporate my business now but keep the land in my sole name. I intend to build premises on the land for the company and charge rent.
Can I reclaim the VAT on the land?
I did not have an 'option to tax' on it?

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Postby paultaylor@vatease.c » Fri Jan 07, 2005 5:00 am

If you wish to reclaim VAT on the purchase of the land and on the costs of constructing the new building you will need to opt to tax the building. Once you have opted to tax VAT will be chargeable on the rent to the Ltd Company. The company will be able to reclaim this subject to the normal rules.

The above will not apply if the company is engaged is significant amounts of exempt ("non-vatable") activities. If this is the case I would recommend you seek assistance from a VAT expert.


Paul Taylor

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Joined: Wed Aug 06, 2008 3:10 pm

Postby prince75 » Fri Jan 07, 2005 9:12 am

Thanks for your reply.
Is there a deadline on which I can 'opt to tax' the land? I bought the land in Oct 2004.

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Postby Instinctive » Sat Jan 08, 2005 11:31 am

An election to waive exemption (Also known as an option to tax) has to be made within 30 Days of the date from which it is to take effect, ie it cannot be back-dated to more than 30 days. If you have made any exempt supplies since the purchase of the property in question, eg, charged rent etc, there will be a restriction in your ability to recover all the input tax suffered by you on the purchase.

Commercial properties and VAT is an immensly complicated subject and you are strongly urged to seek expert advise from those who specialise in this field.

One possibility to consider is to lease the land to your company. It is the company who can then decide to construct a building thereon at their cost. They may be able to recover all input tax incurred on construction costs under their own VAT registration. This is done under normal business rules and not under the option to tax rules. But this should be reviewed in conjunction with other related issues.


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