Expensive to ignore VAT in real estate transactions?

By Steve McCrindle, Haines Watts

Oligarchs may be able to ignore EU VAT charges when buying real estate property, but who else can?

If a business, a not-for-profit organisation or private individual, purchases or sells real estate property there is usually a VAT implication, i.e. will the buyer be charged VAT and is it right that VAT is charged? If so, can the buyer recover it? If recovery is not possbile, can something be done by the seller/buyer to eradicate VAT from the transaction or reduce the amount chargeable? In the UK, irrecoverable VAT can increase the cost of real estate property by 20 per cent, increase the quantum of stamp duty land tax charged and become a deal breaker for an otherwise commercially acceptable deal.

A myriad of factors need to be taken into account to determine the correct VAT liability applicable to a transaction and also, from the buyer’s perspective, if the VAT incurred can be recovered from HM Revenue & Customs (HMRC). Getting it wrong can be expensive as HMRC can impose penalties in addition to recovering the VAT in question.
There are zero-rate and reduced-rate (currently 5 per cent) ‘reliefs’ available in the UK for some real estate property or construction transactions. In addition, streamlined structures may aid VAT cash flow and funding requirements for businesses that cannot ordinarily reclaim VAT incurred on costs. Whether this is possible or not will be subject to the buyers own VAT status and also the intended use of the real estate property after purchase.

In conclusion, ignoring the VAT implications of real estate transactions could be a costly business.

Steve McCrindle

Steve McCrindle

Haines Watts, With more than 60 offices throughout the UK
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GGI Indirect Taxes Practice Group
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Steve McCrindle is a VAT Partner at Haines Watts, a leading provider of business advice and accounting services to ownermanagers operating in the UK and abroad. It has more than 60 offices throughout the UK. He is also Global Chairperson of the GGI Indirect Taxes Practice Group.

Haines Watts assists clients to navigate complex issues around tax planning and structuring, growth and expansion plans, with securing funding, succession management and harnessing opportunities. Our commercial focus and practical approach ensures we help our clients build profitable businesses and realise their ambitions.

Published: October 2015 l Photo: Lance Bellers - Fotolia.com

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