VAT Rise Impact on Commercial Property

Back in June 2010 the coalition government introduced a VAT rate increase from 17.5% to 20% effective from 4 January 2011.  This increase will have an impact on how people choose to spend their money on a personal level moving forward but for businesses where costs are usually greater the considerations hold a higher cost. 

The increase in VAT will affect property generally but for landlords and tenants of commercial properties (as well as the sellers and buyers of commercial properties) considerations will have to be made.

Areas of Concern:

One of the first noticeable points is that property purchases and leases will be affected by Stamp Duty Land Tax. SDLT is the form filled out by a solicitor sent together with a cheque to the Inland Revenue as payment of a form of tax on a property be it a purchase or a lease which will rise to 20%.  Depending on the price of a property/term of the lease the amount increase can vary.  Where SDLT is concerned the situation is slightly more complex and VAT opted commercial properties which are purchased will be affected from the 4^th January meaning a commercial property purchased after this date would see higher VAT related charges, for more information on specific cases it is advisable to speak to a professional about accurate calculations.  For SDLTs completed for lease rents under guidelines issued this year leases granted on or after the 27^th July 2010 should take into account the VAT increase from the 4^th January and any issued before this date (27^th July 2010 and after the 4^th January 2006) should seek professional advice.

Rents on Commercial Property

Leases on commercial properties, the quarter date for rent is usually the 25^th December which is when a rent invoice is issued meaning that whether the tenant pays before or after the 4^th January they will pay at the lower VAT rate of 17.5% on all rent for the quarter ending 24^th March 2011

For an invoice that is issued after the 4^th January the VAT chargeable on the rent will still be 17.5% because this quarters rent payment day will be fixed to the 25^th December.

In the case where both the issue of the rent invoice (and dated) and the rent payment are after the 4^th January VAT will be chargeable at the higher VAT rate of 30%.

Buying and Selling

When buying and selling the implication is based on the date of purchase, if completion takes place before 4^th January VAT will be chargeable at 17.5% but for completions that take place after 4^th January 2011 VAT will be charged at the higher rate of 20%, so where possible it is advisable when large sums of money are concerned to complete before the 4^th January to benefit from the lower rate.

This will also apply to fees concerned with any transactions including solicitor fees, agents fees etc.

In complex matters such as these it is always advisable to seek professional guidance to get an accurate analysis of your specific situation.

Author Bio

H Parker has a keen interest on understanding how VAT changes impact daily life and gained information from this post from a capital allowances company. 

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