Tax & Accounting News

Chance To Save On Property Taxes

05/06/2009

An important deadline is approaching which may give those buying and selling property a welcome chance to save on VAT and Stamp Duty Land Tax (SDLT).

This relates to a major change to the tax regime which took place on 1 August 1989, when land and buildings became subject to VAT, following a ruling by the EU.

Older buildings (more than three years old) remained exempt, unless owners chose to waive that exemption, usually called an ‘option to tax’. This was done by many commercial property owners at the time, as it allowed them to reclaim the VAT they paid on the costs of running or improving the building.

However, taking that option also means the rent they charge their tenants and the sale price of the property is subject to VAT, often making it difficult to sell or let such a building in the current economic climate.

The option to tax stays in force until it is revoked, but this can only be done after a minimum of 20 years – so 1 August 2009 is the first chance for those who opted into the tax in 1989 to cancel it. Even if the option to tax was made by a previous owner, the current owner can still revoke it providing it has been in force for 20 years in total.

Similarly, a company or individual looking to buy a property should consider asking the seller if it is subject to VAT – and if so, whether the option could be revoked in the near future, therefore potentially saving a big bill on top of the purchase price. In addition, since SDLT is charged on the total purchase cost of a property, removing the VAT would provide a saving with regard to that tax as well.

For more information or advice on property taxation, please contact us.

 

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