understanding VAT on commercial property

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Adsum provides VAT funding pre-completion of the commercial property purchase

Don't let the VAT on your commercial property purchase catch you out

An additional 20% must be paid as VAT upon completion. Then the VAT can be claimed back as a VAT refund from HMRC. Typical commercial property finance solutions or mortgages don’t cover this 20% VAT... Fortunately, Adsum can!
“I managed to agree a deal in principle to purchase a very sought after property in London. At the time of the agreement I hadn’t realised the property was opted to tax meaning I had to pay an additional 20% VAT. Through Adsum I was able to cover the extra cost quickly and affordably. They took care of everything so I could go ahead with the deal, without delay.”
How we helped fund VAT on a commercial property purchase

Understanding VAT on Commercial Property

The basics

VAT on commercial property purchases and transactions is complex. Generally, the sale or lease of commercial property is exempt from VAT, meaning neither a purchaser nor a tenant would typically pay VAT. This exemption includes exchanges of interests, rights over, or licenses to occupy commercial properties. However, there are exceptions, such as properties that are new (less than three years old) or when the vendor or landlord has opted to charge VAT, often in cases of refurbished properties.

How VAT affects property transactions

The implications for buyers and sellers are significant. For a property exempt from VAT, vendors cannot recover VAT on related costs, impacting their financial calculations. Standard-rated transactions, however, include VAT, affecting buyers’ cash flow. Understanding these dynamics is crucial for effective financial planning and compliance.

Electing to charge VAT

Commercial property owners can opt to charge VAT at the standard rate (currently 20%) when selling or leasing their property. This decision, which must be notified to HMRC within 30 days, allows them to recover VAT on related property costs. However, it’s largely irrevocable for 20 years and doesn’t follow the property to the next owner. This choice can impact the marketability of the property, especially to sectors like banks and charities, who might not be able to recover VAT.

Transfer of a Going Concern (TOGC)

In cases where a property rental business is sold and the buyer intends to continue the same business, the transaction may qualify as a TOGC. This classification is outside the scope of VAT, offering an attractive option for buyers. However, for TOGC conditions to be met, the buyer must mirror the seller’s VAT position by the date of transfer.

VAT on the sale of new commercial property

New commercial properties (less than three years old) attract VAT at the standard rate. Buyers intending to rent out new properties often elect to charge VAT on future rents and sales to recover the VAT incurred during acquisition.

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The solution to VAT on commercial property purchases

Unlock the full potential of your property investments with our expert-backed VAT solutions—designed to equip you financially and make you compliance-proof.

Best price guarantee

Adsum leads the market in VAT refund services, backed by our commitment to offer you the best value. If you receive a better offer we will beat it.

30+ years VAT expertise

With three decades of VAT expertise, Adsum doesn't just prepare you financially—we make you compliance-proof. Get ahead of the game with a full VAT review before your next property purchase, ensuring no detail is missed, no surprise awaits.

Insurance against HMRC delays

Protect your business's cash flow with Adsum. There's no need to wait or worry - access your VAT refunds in as little as 60 minutes. Our service is your safeguard against any unforeseen HMRC delays.

Certainty

No monthly interest - We offer a straightforward fee structure with no hidden costs which means that your forecasts and cash projections have certainty.

How it works

HIW1

1. Get in touch

Our dedicated team will swiftly respond to discuss your specific needs and how our VAT solutions can align with your financial goals.

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2. Pre-completion VAT advance

Before your property purchase completes, Adsum provides the necessary VAT funds, freeing your capital for other essential aspects of your project. This unique service ensures you’re not constrained by the substantial VAT costs, typically not covered by senior lenders.

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3. Monthly Instant VAT® Refunds

Post-completion, benefit from our ongoing VAT refund service. Submit your monthly VAT return, and Adsum will ensure you receive your refunds promptly—typically within 60 minutes. This reliable monthly service guarantees a steady cash flow, enabling you to plan and progress without unnecessary delays.

What people ask us about commercial property VAT

Do you pay VAT on commercial property?

All commercial properties are VAT exempt at the point of sale. However, commercial property owners do have the option to tax, which means charging VAT at 20%. New commercial property (defined as property that is less than three years old) is also liable to VAT at the 20% rate. If you do have to pay VAT on the commercial property you’re purchasing, and you’re eligible for a VAT refund, a VAT advance courtesy of Adsum means you’ll receive the money in advance of HMRC’s reimbursement and can use it to cover the cost of the VAT you have to pay on completion of the property purchase.

How do I avoid paying VAT on commercial property?

You cannot avoid paying VAT if it is due. However, if the property you want is opted to tax or a new build, you can use intelligent funding solutions to make the VAT payment, such as Adsum’s commercial property tax funding. As we provide you with an advance on your VAT refund from HMRC, your cash flow will not be affected despite the VAT charge.

Is there VAT on the sale of a commercial property?

VAT has to be charged on the sale of a commercial property if the option to tax has been made on it. If so, the option to tax is largely irreversible and this is not at the discretion of the seller.

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