VAT relief is only permitted on residential schemes and even then it will not apply to all of the works as certain FF&E are explicitly blocked from all forms of VAT relief.

Non-residential builds will therefore attract a VAT charge of 20%, and VAT reclaim cannot be automatically presumed. Just being registered for VAT is in itself insufficient to reclaim VAT – we need to show that the nature of the business also supports VAT recovery.

Non-Residential Builds

The rental and disposal of commercial premises (and indeed residential premises) normally prevents Input Tax Reclaims; however, we can advise on the following that may remove the burden of VAT:

  1. Is any form of VAT relief allowed on residential elements and to what extent?
  2. Do the advantages of Opting to Tax the building outweigh the disadvantages?
  3. Would Voluntary VAT Registration be suitable – especially where sales can be Zero Rated?
  4. Resolving the inevitable HMRC queries that accompany VAT Returns where sales are nil or w/o VAT.

There is enough risk associated with property development in the current economic climate – this need not be compounded by having question marks hanging over the scheme with regards to VAT.

Likewise, having a sensible yet robust VAT estimate at OBC stage can ensure financing and budgets are accurate & reflective. Can this allow you to increase your bid price whilst maintaining the same margin?


Many buildings are sold with the Option to Tax applied - resulting not only in a 20% uplift due to VAT but also an uplift in Stamp Duty (SDLT being calculated on the VAT inclusive price).

There are circumstances where this VAT charge can be overturned – a 20% saving and of course a corresponding SDLT reduction. This cannot be retrospectively applied and if VAT is proven to be incorrectly charged post completion – HMRC are unlikely to permit Input Tax Reclaim. 

Even if you are an organisation that can reclaim VAT, input tax recovery is on a property by property basis. Whilst VAT reclaim may be permitted, the cost to finance the VAT between completion and your next VAT return is an additional cost that erodes yield. The additional SDLT cannot however be reclaimed…

We can advise on whether the vendor is applying VAT correctly, whether the Option can be overturned and the formalities HMRC require to do so.  Solicitors are not always VAT experts and may not be aware of the nuances for your particular purchase (ex public houses are prime candidates for incorrect VAT treatment).

A ‘transfer of an ongoing concern’ [TOGC] is another way in which VAT on a purchase can be mitigated. The timing and structure of the deal is paramount and needs to be corroborated by contracts, inventories and your recorded intentions.

We can guide you through all of these complexities to ensure that no VAT is suffered unnecessarily and where VAT is reclaimed – that it is done so without any associated risk or potential to clawback.


You can contact our Free VAT Helpline 24 hours a day using the online form or email

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    Berthold BauerCommercial