Posted by Paul Daniels, Partner
Beware VAT on commercial property deals
All too often, our Commercial Property team sees transactions where the VAT status of the property being sold is uncertain and not clarified until long after heads of terms have been issued. This can have major cash flow implications for buyers and also result in higher Stamp Duty Land Tax (SDLT) liabilities for them.
The recent case of CLP Holding Co Ltd v Singh and Kaur [2014] highlights the need for both parties to a commercial property deal to consider any VAT implications at an early stage.
In this particular case, the seller (CLP Holding Co) agreed to sell to Mr Singh and Mr Kaur a commercial property. The CLP Holding Co had opted to tax the property for VAT but at no time between March 2002 and March 2008 did the parties specifically address whether an option to tax had been made or VAT was payable in respect of the purchase price.
The sale contract did provide that the purchase price was “exclusive of VAT” but due to the interpretation of the contract provisions and the conduct of the parties and their advisers, the court held that the buyer was not liable to pay VAT on the purchase price.
While the circumstances of this case are unusual and most well-advised buyers and sellers would have addressed the question of VAT during the transaction, this highlights the issues that can arise if VAT and its application to a deal is not considered as soon as a seller looks to sell their commercial property.
Photocredit – Robert Pitman https://www.flickr.com/photos/50144889@N08/
If you are buying or selling commercial property contact our Commercial Property team for expert advice on all aspects of your transaction. Our experienced team work with clients and VAT experts to ensure only the correct payments of VAT and SDLT are made.
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