Don’t lose 20% of your property sale to the VAT Man

A recent case through the Tax Tribunal has highlighted the danger of forgetting to charge VAT on a property sale.

Sarah Baron - Menzies AccountantIn the case in question, a couple had bought a pub with a sitting tenant. At the time of the purchase, they notified an option to tax to HMRC. Things didn’t go well, and no rent was ever received from the tenant. The couple cut their losses and sold the premises after just over a year.

At that point, they were told by the buyer that the sale was not subject to VAT, so didn’t charge any on the sale. HMRC assessed them for 20% VAT on the sale price.

Applying the correct VAT on a property

It is always the seller’s responsibility to apply the correct VAT treatment. The couple relied on the buyer, who would not know the history of their ownership, and also their solicitor who didn’t mention charging VAT. It can be easy to forget that, amongst all the documents you signed at the time of a property purchase, one of them was a notification of an option to tax. It is good practice to keep a copy of any notification and acknowledgement with the deeds to the property.

If the seller is not sure whether they have opted to tax or not, they should ask HMRC whether there is any record of a notification. Whilst this is not completely watertight, as historically not all options had to be notified to HMRC, it is usually the best way to get any certainty. Whilst it has in the past taken at least six weeks to get a response on these matters from HMRC, we have recently received confirmation within two weeks.

If in doubt, make a provision for VAT

If any doubt exists as to whether the transaction should be subject to VAT or not, the contract must include provision for the seller to charge at a later date. It will not always be straightforward to collect payment from the buyer, but can be a starting point for negotiations.

The case above resulted in a VAT liability for the couple of £7,000 and is not an uncommon mistake to make.

VAT should be a consideration in any transaction in property. Whether the sale is for £50K or £3m, to lose 20% of the consideration received by way of a VAT liability will have a significant impact on the seller. Menzies VAT team are always happy to assist in identifying and mitigating any potential risks.

For more information on the impact of VAT on a property sale, please contact Sarah Barron by phone on 01489 566298 or by email on


Menzies advise commercial and residential developers, contractors, owners and investors, as well as sector-dependent clients. We work closely to find solutions to industry issues, utilising our expertise in everything from business strategy and corporate finance, to audit and tax advice.

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Posted in Blog, Property & construction