VAT on Land and Property Explained: What Businesses, Landlords, and Developers Must Understand

Understanding VAT on Land and Property Transactions

Land and property transactions are some of the most complicated areas of VAT. Unlike everyday goods and services, VAT on property isn’t always straightforward. Some transactions are exempt, some are standard-rated, and others fall under special options to tax. Getting it wrong can lead to huge unexpected bills.

The General Rule

• Most sales and leases of land and buildings are exempt from VAT.

• But there are key exceptions where VAT is charged at 20% (standard rate).

Common Scenarios

1. Sale of New Commercial Property

• If you sell a new commercial property (less than 3 years old), VAT is usually charged at 20%.

2. Sale of Old Commercial Property

• If the property is more than 3 years old, the sale is normally exempt, unless the seller has opted to tax.

3. Renting or Leasing Commercial Property

• Generally exempt.

• But landlords can “opt to tax”, meaning they choose to charge VAT (20%) so they can also reclaim VAT on related expenses (e.g. refurbishments).

4. Residential Property

• Sale of new residential property (new builds) = zero-rated (0%).

• Sale or lease of existing residential property = exempt.

• Conversions and certain renovations may qualify for reduced rates (5%) or even zero-rating in specific cases.

Example: Landlord Renting Out an Office

• A landlord rents out an office to a tenant. Normally, that rent is exempt from VAT.

• But if the landlord has opted to tax, they must add 20% VAT to the rent invoice.

• The benefit? They can reclaim VAT on refurbishment costs, repairs, or other property-related expenses.

• The downside? The tenant pays more (unless they themselves can reclaim VAT).

Why It Matters

• Property is high-value — VAT mistakes here can mean six-figure liabilities.

• Decisions like whether to opt to tax should be made carefully, as they are usually binding for 20 years.

• HMRC looks closely at property transactions due to the sums involved.

At Wexley & Associates, we advise property developers, landlords, and investors on how to structure their property VAT decisions — ensuring compliance and protecting cash flow.

Get Specialist Guidance on Property VAT

If you’re buying, selling, or leasing property, don’t take risks with VAT. Speak to Wexley & Associates for clear, proactive advice that could save you thousands.

References

• HMRC: VAT on land and property (VAT Notice 742)

• Internal link: Case Study – VAT Mismanagement Costs Business £150,000