Q: I am purchasing a commercial property and will be paying VAT on the purchase because the vendor has an option to tax on the property. My intention is to use the property for making fully taxable supplies. Will I take over the option to tax from the vendor when the property transfers and if not will I need to make an option to tax to be able to recover the input tax suffered on the purchase?
A. The option to tax does not transfer from the vendor to the purchaser. You will have the choice as to whether or not to make an option to tax on the property. If you are using the property for making fully taxable supplies then you will be able to recover the input tax on the purchase of the property without making an option to tax. However, if in the future you make exempt supplies of the property for example selling the property, or renting out part or all of it to a tenant then there could be an adjustment to repay part of that input tax reclaimed either under the Capital Goods Scheme (if the property cost more than £250,000) or under partial exemption clawback. An option to tax does not have to be made at the time of purchase; you could opt to tax the property later if you envisaged making an exempt disposal of, or rental of, the property.
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