Property Guide – UK
October 2023
This is a general guide only and not designed to cover every scenario and the nuances of property VAT. Specific advice according to each transaction or supply should always be sought from a VAT specialist.
| Supply | Commercial/non-residential | Residential | Charitable |
|---|---|---|---|
| Freehold Sale (sale of legal title) | S/R if property 3 years old or less. EX in other cases, but can Opt to Tax making S/R. Any bare land is deemed commercial in effect and EX subject to a seller Opting to Tax. Note – Option to Tax may not apply in some situations. | Z/R for first sale of newly built dwellings or those converted from commercial use. Z/R for first sale of ‘relevant residential’ homes, e.g. care home, students accommodation. Z/R for partly completed new dwellings and relevant residential homes. Z/R for sale of refurbished residential properties that have not been occupied for 10 years or more. EX for all other sales. Note – Option to Tax has no effect on residential properties. | Z/R for first sale of property used solely for ‘relevant charitable’ purpose, e.g. non-business use or ‘village hall’, or partly completed relevant charitable buildings. S/R if not ‘relevant use’ and under 3 years old. EX for all other sales. Note – an Option to Tax may or may not apply depending on scenario |
| Leases | EX, but S/R if Option to Tax by landlord. Note – Option to Tax may not apply in some situations | Z/R for first long leasehold sale in excess of 21 years. EX for all other. Note – Option to Tax has no effect. | Z/R for first long leasehold sale in excess of 21 years. EX for all other. Note – Option to Tax may not apply to relevant charitable use properties |
| Transfer/sale of property including tenants and where leases continued by buyer. | Outside the scope of VAT where conditions are met – seek advice | Outside the scope of VAT where conditions are met – seek advice | Unlikely to apply |
| Rent | EX, but can be S/R if landlord has Opted to Tax or if accommodation is provided with other services, e.g. serviced office | EX in all cases. | EX or S/R if landlord has Opted to Tax. Use for a ‘relevant charitable’ purpose may mean that any Option to Tax does not apply. |
| Construction services | S/R for charges by main contractor to end user/property owner. Subcontractors need to consider UK’s domestic reverse charge rules, where main contractor self-charges VAT. | Z/R for newly constructed dwellings and ‘relevant residential’ homes, including builders materials usually installed by builders. R/R if unoccupied for over 2 years. S/R if not newly constructed or empty for over 2 years. Domestic reverse charge rules may apply. | Z/R for newly constructed ‘relevant charitable’ properties. S/R if not newly constructed. Domestic reverse charge rules may apply. |
| Conversion services | S/R if commercial to commercial or to charitable use. R/R if commercial to dwellings or ‘relevant residential’ use. | R/R if change in number of dwellings following conversion, or from ‘relevant residential’ to dwellings or vice versa. S/R if relevant residential to relevant residential and if no change in number of dwellings. | S/R if existing building converted. |
| Refurbishment services | S/R, unless part of a ‘qualifying conversion’ of domestic properties – seek advice | R/R if unoccupied for more than 2 years. S/R in all other cases. | S/R |
| Materials only for building | S/R | S/R | S/R |
| Overseas suppliers of property related services e.g. architect, surveyor, construction | Subject to Reverse Charge if supplied to a UK established VAT registered customer, but if not, overseas supplier may have to register for VAT. There is a nil registration threshold for non-UK established businesses. | Subject to Reverse Charge if supplied to a UK established VAT registered customer, but if not, overseas supplier may have to register for VAT. There is a nil registration threshold for non-UK established businesses. | Subject to Reverse Charge if supplied to a UK established VAT registered customer, but if not, overseas supplier may have to register for VAT. There is a nil registration threshold for non-UK established businesses. |
Taxable with right to recover related VAT on expenditure
Standard rate (“S/R”) = 20%
Reduced rate (“R/R”) = 5%
Zero-rate (“Z/R”) = 0%
Exemption, with no right to recover VAT on expenditure
Exempt (“EX”) = 0%
Option to Tax/other exceptions
An Option to Tax is a decision taken by each entity holding or intending to hold an interest in land or property. It requires formal notification to HMRC and usually lasts for at least 20 years. It means that supplies that are ordinarily VAT Exempt become taxable at the standard rate, which in turn means that VAT is charged to buyers or tenants. It is a common decision for commercial property owners as it allows VAT on related expenditure to be reclaimed from HMRC. The Option to Tax applies only to the opter at the named property, and does not apply to other persons’ (new owners, sublessors) income/supplies.
