Implications of "joint option to tax" sale of commercial building

cbruen1

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84
There’s a commercial building for sale on a main street in a town down the country that requires substantial refurbishment. It has retail units on the ground floor and some living space overhead. The sale is listed as a “joint option to tax” which means the purchaser will have to pay VAT.

What I’m wondering is if I buy the property for a business that I’ll be setting up in the next few months (i.e. company isn’t set up or registered yet):

- can I re-claim the VAT when the company is set up?
- could / should I sell the building to the company when the company is up and running?
- are there any other implications I'd need to be aware of?

Thanks in advance.
 

RedOnion

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4,286
Hi,

Personally I would say that anything to do with VAT on property really requires specialist advice. It's a minefield.

Added to that you're talking about holding property through a company that's not even trading yet. Typically discouraged from a tax perspective, but maybe there's something about the circumstances that justify it, so get advice on that also.
 

Brendan Burgess

Founder
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40,245
What Red said is absolutely true - you need specialist advice.

And not from your normal accountant or solicitor. It has to be a VAT specialist.

The system was "simplified" a few years ago and is now completely unintelligible except to a few.

If it's an old building that money was not spent on refurbishment, then it doesn't make any sense that they would charge VAT on it. Sounds as if the vendors require specialist VAT advice.

The fact that they say "joint option to tax" suggests that they are not obliged to charge VAT.

There is a real risk that you could be charged VAT and not be able to reclaim it.

Brendan
 

Ciru75

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92
If it's an old building that money was not spent on refurbishment, then it doesn't make any sense that they would charge VAT on it. Sounds as if the vendors require specialist VAT advice.

The fact that they say "joint option to tax" suggests that they are not obliged to charge VAT.
The vendor isn't obliged to charge VAT but would want to charge VAT on the sale. If they sell the building exempt from VAT, they will have to pay back some of the VAT that they deducted when buying the building as an adjustment under the Capital Goods Scheme. They may be amenable to selling without VAT for a higher price to cover the VAT bill that would accrue.

OP, you absolutely need advice from a professional who knows about VAT on property, especially if you're thinking about doing something complicated like buying the building yourself and transferring it to a company. The amount of VAT is likely to be high so you don't want to be stuck not being able to deduct it. Note that the "living space" above the shops won't be used for taxable (meaning VAT charged) purposes so you won't be able to deduct a portion of the VAT you pay, this is a complicated area!
 

cbruen1

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84
Thanks for the info, seems like it's pretty complicated.

It's a receiver sale, don't know if that makes a difference but might explain why they want to charge VAT.
 

Brendan Burgess

Founder
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40,245
If they sell the building exempt from VAT, they will have to pay back some of the VAT that they deducted when buying the building as an adjustment under the Capital Goods Scheme.
Hi Ciru

I defer to your expertise on the matter, but why are you so sure that they paid VAT on the purchase?

I think it's unlikely as the building "requires substantial refurbishment."

I suppose that they might have bought it new 10 years ago and have since let it go downhill.

Brendan
 

Brendan Burgess

Founder
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40,245
It's a receiver sale, don't know if that makes a difference but might explain why they want to charge VAT.
Ah, that probably explains it.

I have been told that, for simplicity, Receivers just charge VAT so that there is no subsequent comeback on them.

If they are charging it incorrectly, you may not be able to reclaim it whatever you do.

So if a building has a market value of €100k normally and they insist on charging VAT, they should reduce the price to

€88k
+13.5% VAT
=€100k

Brendan
 

cbruen1

Frequent Poster
Messages
84
Ah, that probably explains it.

I have been told that, for simplicity, Receivers just charge VAT so that there is no subsequent comeback on them.

If they are charging it incorrectly, you may not be able to reclaim it whatever you do.

So if a building has a market value of €100k normally and they insist on charging VAT, they should reduce the price to

€88k
+13.5% VAT
=€100k

Brendan
Funny you should mention that, the building is for sale by auction which was supposed to take place in March but was postponed, probably because of the Covid situation. It was listed at AMV of 100k back then but is now listed at 80k.

My solicitor looked at the legal documents and said no planning permissions or certificates of compliance are being provided. It's a pre-1964 building and work has been carried out on it, so retention permission and fire safety etc could be another issue.

I'm now veering away from it as there seems to be a lot of issues that could come back to haunt the purchaser.
 

cbruen1

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84
Can anyone recommend a VAT specialist, someone that would be familiar with VAT on property etc.?
 

Brendan Burgess

Founder
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40,245
I'm now veering away from it as there seems to be a lot of issues that could come back to haunt the purchaser.
It's going to cost you around €1,000 - €2,000 for the VAT advice alone.
If you are thinking of some complicated company structure, that will be more.

And it looks as if you have to get planning advice as well.

It sounds to me as if you could easily spend €5,000 on this and then decide not to pursue it.

So I would recommend that you
1) Make an assumption that you cannot reclaim the VAT
2) That you will buy it in your own name and let it to the company
3) Estimate how much the refurbishment is going to cost
4) Factor in a cost for making it compliant with all the regulations.

Then make an offer. If the offer is accepted, then you should get it surveyed and get hard estimates for the refurbishment.

Don't engage tax advisors until the project is a runner.

Brendan
 

Ciru75

Frequent Poster
Messages
92
Hi Ciru

I defer to your expertise on the matter, but why are you so sure that they paid VAT on the purchase?

I think it's unlikely as the building "requires substantial refurbishment."

I suppose that they might have bought it new 10 years ago and have since let it go downhill.

Brendan
I couldn't see why they'd insist on the joint option to tax the sale otherwise. A receiver being involved may change things though.
 

DavieJones

New Member
Messages
4
There’s a commercial building for sale on a main street in a town down the country that requires substantial refurbishment. It has retail units on the ground floor and some living space overhead. The sale is listed as a “joint option to tax” which means the purchaser will have to pay VAT.

What I’m wondering is if I buy the property for a business that I’ll be setting up in the next few months (i.e. company isn’t set up or registered yet):

- can I re-claim the VAT when the company is set up?
- could / should I sell the building to the company when the company is up and running?
- are there any other implications I'd need to be aware of?

Thanks in advance.
There’s a commercial building for sale on a main street in a town down the country that requires substantial refurbishment. It has retail units on the ground floor and some living space overhead. The sale is listed as a “joint option to tax” which means the purchaser will have to pay VAT.

What I’m wondering is if I buy the property for a business that I’ll be setting up in the next few months (i.e. company isn’t set up or registered yet):

- can I re-claim the VAT when the company is set up?
- could / should I sell the building to the company when the company is up and running?
- are there any other implications I'd need to be aware of?

Thanks in advance.
If letting to your company, I think company must be 90% involved in VATable supplies, if not I think you can't charge VAT to company, and I think you then lose recovery capacity on VAT you were charged. To facilitate VAT recovery, I think you need to register for VAT personally if you are buying property personally and you hope to recover the VAT. WARNING : TAKE PROFESSIONAL ADVICE, MY COMMENTS ARE WITHOUT PREJUDICE
 

DavieJones

New Member
Messages
4
If letting to your company, I think company must be 90% involved in VATable supplies, if not I think you can't charge VAT to company, and I think you then lose recovery capacity on VAT you were charged. To facilitate VAT recovery, I think you need to register for VAT personally if you are buying property personally and you hope to recover the VAT. WARNING : TAKE PROFESSIONAL ADVICE, MY COMMENTS ARE WITHOUT PREJUDICE
If you register for VAT personally, you do so in the context of you making VATable supplies. Renting property to your co. could be VATable supplies if all conditions are met : eg 90% rule above, also execute option to charge VAT on rents
 
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