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Property Perils
VAT and land go together like scissors and running - great care is required. A couple of recent news items emphasise this.
In one, a man (X) was in separate business partnerships with his first wife (Y) and his second wife (Z) - VAT cases can equal any soap opera. The X+Z business was short of money, so they transferred a property they owned to the X+Y business, and X and Y each paid £125,000 into the X+Z business bank account.
The problem was that the X+Z business had 'opted to tax' that building, and Customs argued that the building had been sold for £250,000 - they wanted VAT on the whole amount. X reckoned he had just introduced some new capital - he owned half the building before, and half the building after, so there was no change there. It's possible that Y and Z didn't think about VAT at all, but they argued that they had just transferred a share in the partnership rather than the building, and partnership shares aren't
VATable.
On the evidence, the court preferred Customs' view. It's a reminder - if you have land in your business, particularly where VAT was paid on buying it or the option to tax has been made, you always need to think about VAT when you do anything with that land.
The Budget also made a change on transfers of businesses as a going concern (TOGC) where the business includes land. Usually, a TOGC is free of VAT, but people have been taking advantage of this, so Customs are tightening the rules. There's an extra piece of paper to fill in now if you want to charge no VAT on such a sale.
We will be pleased to advise you about avoiding the VAT pitfalls on property transactions.
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