Buying a mixed use commercial property with OTT

[Ballcheck]

Hi everyone,

I'm about to put an offer in on a pub with managers accommodation above, and the seller is charging VAT with the option to tax. The seller says that VAT will apply to 90 percent of the purchase price, taking into account that part of the property is residential. I would like to argue this as I can see that 50 percent of the floor area is in fact residential. My question is - would the seller be locked in to that 90 percent commercial use percentage when they exercised the option to tax, or might it be negotiable?

Thanks!

[Trevor S]

As in my reply to this question on AccountingWeb, making/notifying an option to tax does not fix a commercial proportion. The land/building is opted, and when any specific supply is made of it, any extent to which that option to tax is disapplied will be determined.

For example, if instead of selling the entire property, say their supply was just renting out the flat. The option to tax would be fully disapplied. Alternatively, say they hired out a function room - the full charge would be taxable.

There are various circumstances under which an apportionment might previously have been carried out - for example when it was constructed, when it was purchased by the current owner, or for partial exemption purposes. In most cases, HMRC's requirements are generally that any apportionment should give a "fair and reasonable" result. That's not to say that different appointments couldn't be used for difficult transactions, but if they were, it should be possible to explain why.

Is the pub still open and do you intend to keep operating it? If so, the transaction might meet the criteria for a TOGC.

[Trevor S]

Apologies - I've just noticed that your question here predated the replies on AW! I've only just received the email notifying me of your question here, which is why I'd assumed that you had only just posted it!