VAT1614D: Can You Disapply an Option to Tax When Converting Commercial Property to Residential?

VAT1614D: Commercial to Residential Property VAT Explained

VAT1614D, TOGCs, Share Purchases and Purchase Options – How Property Developers Can Structure the Acquisition of a Commercial-to-Residential Project

By Steve Bicknell FCMA, CGMA

You have found an office building for:

£1,000,000

It looks ideal for conversion into residential flats.

Then your solicitor tells you:

“The seller has opted to tax, so there will be another £200,000 VAT on the purchase.”

Do you actually have to pay it?

POTENTIALLY NOT.

If the conditions are satisfied, VAT1614D can disapply the seller’s option to tax where the building is being acquired for conversion into dwellings or qualifying residential use.

HMRC specifically provides VAT1614D for this purpose.

But VAT1614D isn’t the only route a property developer should consider.

Depending on the circumstances, the developer might instead:

  • buy an existing property rental business as a Transfer of a Going Concern (TOGC);
  • continue collecting commercial rents while seeking residential planning permission;
  • buy the company that already owns the property;
  • secure the property using an option to purchase while seeking planning;
  • enter into a conditional purchase contract;
  • or buy the building directly for immediate residential conversion.

Those routes can have very different consequences for:

VAT + SDLT + STAMP DUTY + CORPORATION TAX + CAPITAL ALLOWANCES

So before agreeing how to buy the building, the better question is:

WHAT EXACTLY ARE WE BUYING – AND WHAT WILL WE DO WITH IT FIRST?

Commercial property acquisition options including VAT1614D TOGC share purchase and purchase option

Quick Answer – Four Possible Acquisition Routes

A developer looking at the same commercial building could potentially consider:

Acquisition routeKey tax issue
Buy vacant building for residential conversionVAT1614D
Buy existing property rental business and continue itTOGC
Buy the company that owns the propertyShare purchase / Stamp Duty
Secure property while seeking planningPurchase option / conditional contract

These aren’t simply four interchangeable ways of avoiding tax.

Each has different legal and tax consequences.

The facts determine which treatment applies.


Route 1 – VAT1614D

Commercial land and buildings are commonly exempt from VAT unless an exception applies or the owner has exercised an:

OPTION TO TAX

An option to tax will normally make supplies that would otherwise be exempt taxable.

But there are circumstances where the option is disapplied.

One of the most important for property developers is where a commercial building is going to be:

CONVERTED INTO DWELLINGS

or used solely for a qualifying relevant residential purpose.

HMRC confirms that VAT1614D is the prescribed certificate for buildings being converted into dwellings.

HMRC – VAT1614D

HMRC – VAT Notice 742A: Opting to Tax Land and Buildings


£1 Million Office – VAT1614D Example

Suppose Conversion Developments Ltd agrees to purchase a vacant office.

Purchase price:

£1,000,000

The seller has opted to tax.

Without disapplication:

Amount
Property£1,000,000
VAT at 20%£200,000
Total£1,200,000

Conversion Developments Ltd intends from the outset to convert the offices into:

10 RESIDENTIAL FLATS

If the conditions are satisfied and VAT1614D is provided correctly and at the right time, the seller’s option to tax can be disapplied.

The underlying property supply would then normally be:

VAT EXEMPT

rather than standard-rated because of the seller’s option.

That could remove the need to fund:

£200,000 VAT

at acquisition.


VAT1614D Can Affect SDLT Too

A developer might say:

“We’re VAT registered and we’re going to sell the flats, so can’t we just recover the £200,000 VAT?”

Potentially, depending on the subsequent taxable use and normal input-tax rules.

But that overlooks:

CASH FLOW

and:

SDLT

HMRC confirms that VAT actually payable on a land transaction is included in the chargeable consideration for SDLT, even where that VAT can subsequently be recovered as input tax.

So:

Property: £1,000,000

VAT: £200,000

could potentially mean SDLT is calculated on:

£1,200,000

rather than £1 million.

That makes VAT1614D potentially much more than a cash-flow issue.

HMRC – SDLT and VAT

VAT1614D example disapplying option to tax on commercial property conversion

VAT1614D Timing – Don’t Leave It Until Completion

This is one of the most important practical points.

HMRC says the VAT1614D certificate should be given:

BEFORE THE PRICE IS LEGALLY FIXED

and gives examples including:

  • exchange of contracts;
  • letters or missives;
  • and signing heads of agreement.

HMRC also notes that heads of agreement do not necessarily legally fix the price in every case.

If the certificate arrives after the price has been legally fixed, the seller is not obliged to accept it, although there are circumstances where the seller may choose to do so for later supplies.

So the practical message is:

DON’T WAIT UNTIL EXCHANGE TO START THINKING ABOUT VAT1614D.

Consider it when the transaction is being negotiated.


The Residential Intention Must Be Genuine

VAT1614D isn’t simply a mechanism for removing VAT from a commercial property purchase.

The purchaser must have the relevant qualifying intention.

HMRC says a purchaser can certify where it intends to:

  • use the building as a dwelling or for a qualifying relevant residential purpose; or
  • convert the building with a view to that qualifying residential use.

Importantly, HMRC says the certificate cannot generally be issued where the purchaser intends to put the building to a non-qualifying use for a period first, although minor or incidental use can be disregarded.

That becomes particularly important when comparing:

VAT1614D

with:

TOGC


Route 2 – Transfer of a Going Concern

Suppose the building isn’t vacant.

Instead it is an existing:

COMMERCIAL PROPERTY INVESTMENT

with tenants paying rent.

The developer intends to buy the building, continue collecting rent and seek planning permission for residential conversion.

That raises a different question:

COULD THE PURCHASE BE A TOGC?

A qualifying Transfer of a Going Concern is not treated as a supply for VAT purposes.

This is fundamentally different from VAT1614D.

VAT1614D potentially makes the underlying property supply exempt by disapplying an option to tax.

A TOGC is:

OUTSIDE THE SCOPE OF VAT

where its conditions are satisfied.

HMRC – Transfer a Business as a Going Concern, VAT Notice 700/9


A Tenanted Property Can Be a TOGC

HMRC specifically confirms that where someone owns a freehold property, lets it to a tenant and sells the freehold with the benefit of that lease:

A PROPERTY RENTAL BUSINESS CAN BE TRANSFERRED

HMRC also confirms that a property can potentially qualify even where it is only:

PARTLY TENANTED

provided there is genuine economic activity and the letting isn’t negligible.


Developer Example – Continue Renting While Seeking Planning

Suppose Conversion Developments Ltd finds a commercially let office building.

Purchase price:

£2,000,000

The building is occupied by several commercial tenants.

The developer believes it could eventually be converted into:

20 FLATS

but planning permission isn’t certain.

The plan is therefore:

  1. acquire the existing property investment;
  2. take over the tenants;
  3. collect the commercial rents;
  4. manage the property;
  5. submit a residential planning application;
  6. continue operating the rental business while planning is considered;
  7. obtain vacant possession later;
  8. and then carry out the residential conversion.

Could the original purchase be a TOGC?

POTENTIALLY.

HMRC requires the buyer to intend to carry on the same kind of business.

There must be genuine continuing business activity rather than merely acquiring assets for immediate disposal.

But importantly:

THERE IS NO PRESCRIBED MINIMUM PERIOD

for which the business has to continue after transfer.

HMRC says the continuation must be real and that there should be an identifiable business before the transfer that remains recognisable afterwards.

That makes TOGC particularly relevant where a developer genuinely continues a property rental business while pursuing planning.


Simply Collecting Rent Briefly Doesn’t Automatically Create a TOGC

The substance of the transaction matters.

A developer cannot simply say:

“There’s a tenant, so let’s call it a TOGC.”

You need to examine:

  • what business the seller is actually carrying on;
  • what leases exist;
  • what is being transferred;
  • whether the buyer genuinely continues that activity;
  • and what the buyer intends to do immediately after completion.

The distinction is between:

BUYING A BUSINESS

and:

BUYING AN ASSET


Seller Has Opted to Tax – TOGC Becomes More Complicated

Where the seller has opted the property to tax, additional TOGC conditions can apply.

The purchaser may need to:

  • make its own option to tax;
  • notify HMRC appropriately;
  • and give the seller the necessary confirmation.

HMRC’s own TOGC guidance illustrates an important point.

If:

Seller has opted to tax

and:

Buyer has opted to tax

but:

Buyer’s option is disapplied

the relevant property TOGC conditions are not met.

This highlights why:

TOGC AND VAT1614D ARE NOT INTERCHANGEABLE.


VAT1614D or TOGC?

A useful starting point is:

Vacant commercial building bought for immediate residential conversion

Think:

VAT1614D

Existing rental business genuinely continued after acquisition

Think:

TOGC

The actual facts determine the answer.


Route 3 – Buy the Company That Owns the Property

There is another possibility where the commercial property is already owned by:

A LIMITED COMPANY

Rather than buying the property from that company, the developer might buy:

THE SHARES IN THE COMPANY

This creates a fundamentally different transaction.

The property doesn’t change hands.

The company owned the property before the transaction.

The same company owns it afterwards.

What changes is:

WHO OWNS THE COMPANY.


Example – Bicknell Property Investments Ltd

Suppose the fictional company:

BICKNELL PROPERTY INVESTMENTS LTD

owns a commercial property.

Its accounts show:

Investment property: £600,000

Other net assets: £25,000

Net assets: £625,000

However, the property is now considered to be worth substantially more.

The parties agree a price of:

£750,000

for 100% of the shares.

Development Holdings Ltd buys the shares.

Compare that with buying the property itself.


Property Purchase Versus Share Purchase

Buying property versus buying shares in a property company tax comparison

Buy the Property

Bicknell Property Investments Ltd sells the building to Development Holdings Ltd.

That is:

A LAND TRANSACTION

So you need to consider:

  • SDLT;
  • VAT;
  • option to tax;
  • VAT1614D;
  • TOGC;
  • Section 198;
  • and capital allowances.

Buy the Company

Development Holdings Ltd buys the shares in Bicknell Property Investments Ltd.

The property remains exactly where it was.

Therefore Development Holdings Ltd has acquired:

SHARES

not land.

That changes the transaction taxes significantly.


Share Purchase – 0.5% Stamp Duty Rather Than SDLT

The purchase of shares in a UK company will normally be subject to:

0.5% STAMP DUTY

rather than SDLT on the underlying property.

HMRC states that when you buy existing shares you will usually pay tax or duty at 0.5%.

Where Stamp Duty applies to a stock transfer form, it is generally calculated on the consideration paid for the shares.

HMRC – Tax When You Buy Shares

So in our fictional example:

Share purchase price: £750,000

Stamp Duty at 0.5%: £3,750

That could be very different from the SDLT cost of acquiring a £750,000 property directly.

But:

THAT DOES NOT AUTOMATICALLY MAKE A SHARE PURCHASE THE BETTER DEAL.


What About VAT on the Share Purchase?

This is also important.

HMRC specifically considers companies holding property within corporate structures.

The UK does not treat a transfer of the shares in a property-owning company as though the underlying property itself had been sold for VAT purposes.

The supply of the shares is therefore generally:

EXEMPT FROM VAT

HMRC – Transfers of Shares in Property-Owning Companies

So buying the shares doesn’t normally result in the seller adding 20% VAT to the underlying property value merely because that property has been opted to tax.

The company continues to own the property.

Its existing VAT history also remains with it.


But You Are Buying the Company’s History

This is the major downside.

Buy a property and you acquire:

THE PROPERTY

Buy a company and you acquire:

THE COMPANY

including its history.

That could include exposure to:

  • Corporation Tax;
  • VAT;
  • PAYE;
  • historic SDLT;
  • contractual liabilities;
  • tenant disputes;
  • planning matters;
  • environmental issues;
  • mortgages;
  • guarantees;
  • director balances;
  • litigation;
  • incorrect historic accounts;
  • previous capital allowance claims;
  • and other liabilities.

This is why buying a property company usually requires extensive:

LEGAL + TAX + FINANCIAL DUE DILIGENCE

The share purchase agreement will also commonly deal with:

  • warranties;
  • indemnities;
  • disclosure;
  • and a tax covenant.

Don’t Confuse Property Value With Share Value

Suppose the property is worth:

£1,500,000

but the company also has:

Amount
Property£1,500,000
Cash£50,000
Debtors£20,000
Mortgage(£700,000)
Other creditors(£30,000)
Potential tax liabilities?

The shares clearly aren’t automatically worth £1.5 million.

The share price should reflect:

ASSETS – LIABILITIES – TAX EXPOSURE – COMMERCIAL RISK


Watch the Latent Property Gain

This can be particularly important with older property companies.

Suppose Bicknell Property Investments Ltd acquired its building many years ago for:

£300,000

and it is now worth:

£1,500,000

Buying the shares doesn’t give the company a new £1.5 million tax base cost for the building.

The company still owns the same asset with its existing tax history.

Consequently there may be a substantial:

LATENT CHARGEABLE GAIN

within the company.

If the company later sells the building, Corporation Tax may arise on the chargeable gain calculated using its appropriate historic tax base.

A sophisticated purchaser will therefore normally take the latent tax exposure into account when negotiating the:

SHARE PRICE


Could You Buy the Company and Then Move the Property?

Potentially.

Suppose Development Holdings Ltd buys 100% of:

BICKNELL PROPERTY INVESTMENTS LTD

It may subsequently decide that the property would be better held elsewhere within the new group.

For example:

Development Holdings Ltd

↓

Bicknell Property Investments Ltd

↓

Commercial Property

The group may want to move the property to Development Holdings Ltd or another group company.

This brings another set of tax rules into play.


SDLT Group Relief

HMRC’s group-relief provisions can allow land and buildings to move between qualifying companies within the same group without an immediate SDLT charge.

Broadly, the relevant companies need to meet the statutory group conditions, including the applicable:

75% GROUP TEST

The purchaser claims the relief on the land transaction.

HMRC – SDLT Group Relief

But group relief shouldn’t simply be assumed.

There are:

  • qualifying conditions;
  • restrictions;
  • anti-avoidance provisions;
  • and withdrawal provisions.

The commercial reason for the intra-group transfer should therefore be documented.


Corporation Tax – No Gain/No Loss

Qualifying assets can generally move between companies in the same capital gains group on a:

NO GAIN / NO LOSS BASIS

This prevents an immediate chargeable gain simply because an appreciated property moves between qualifying group companies.

HMRC explains that the transferee effectively takes over the transferor’s capital gains cost.

HMRC – No Gain/No Loss Transfers Within Groups

So if:

Historic tax cost: £300,000

Current property value: £1,500,000

an intra-group transfer doesn’t normally turn the tax base cost into £1.5 million.

The economic gain has not disappeared.


Revaluation Doesn’t Create a New Tax Base Cost

This is an important distinction.

After buying the company, the group may obtain a valuation showing:

£1,500,000

and the accounting treatment may reflect the property’s fair value.

But:

ACCOUNTING VALUE ≠ TAX BASE COST

A revaluation for accounting purposes doesn’t by itself reset the tax base cost for a future chargeable gain.


Watch the Two Different Group Time Limits

This is an area where different rules can easily become confused.

SDLT Group Relief

HMRC’s principal group-relief withdrawal rule can apply where the purchaser leaves the relevant group within:

THREE YEARS

of the intra-group land transaction, or as a result of arrangements made during that period.

Corporation Tax Degrouping

The capital gains degrouping rules can potentially apply where a company leaves a group owning an asset acquired from another group company within the previous:

SIX YEARS

These are:

TWO DIFFERENT TAX RULES

and shouldn’t be confused.

HMRC – SDLT Group Relief

HMRC – Corporation Tax Degrouping


Route 4 – Take an Option While Seeking Planning

A developer may not want to buy the building at all until planning prospects are clearer.

Suppose the owner wants:

£1,500,000

for an office building.

The developer instead pays:

£50,000

for an option giving it the right to acquire the building for £1.5 million if satisfactory residential planning permission is obtained within 18 months.

The developer has secured control of the opportunity without immediately committing £1.5 million.

But:

THE OPTION ITSELF CAN HAVE VAT CONSEQUENCES.


An Option to Purchase Is an Interest in Land for VAT

HMRC confirms that someone granted an option to purchase property acquires an:

INTEREST IN LAND

for VAT purposes.

The VAT liability of granting the option generally follows the VAT treatment the underlying property transaction would have:

AT THE TIME THE OPTION IS GRANTED

HMRC – VAT Treatment of Property Options

So if the underlying property supply would be exempt at that point, the option will generally be exempt.

If the underlying property transaction would be taxable at that point, the option will generally be taxable.


£50,000 Option Example

Suppose:

Option premium: £50,000

Future purchase price: £1,500,000

Option period: 18 months

Property: Commercial offices

Developer’s intention: Obtain planning and convert to flats

If the option grant is taxable at that time:

Option premium: £50,000

VAT: £10,000

But importantly:

THE VAT TREATMENT OF THE OPTION DOES NOT NECESSARILY DETERMINE THE VAT TREATMENT OF THE EVENTUAL PROPERTY PURCHASE.

The eventual acquisition must be considered when it takes place.

That might bring VAT1614D back into consideration.


What About a Conditional Contract?

Another possibility is:

BUY SUBJECT TO PLANNING

Rather than taking an option, the developer enters into a contract where completion is conditional on specified events.

These might include:

  • satisfactory planning permission;
  • vacant possession;
  • funding;
  • environmental approval;
  • or another development condition.

An option and a conditional purchase contract aren’t legally identical.

The tax consequences can therefore differ.

This reinforces the main message:

DON’T WAIT UNTIL COMPLETION TO THINK ABOUT VAT AND SDLT.


What About the Seller’s Capital Goods Scheme?

VAT1614D can be very attractive to the buyer.

But the seller may have a problem.

Suppose the seller:

  • acquired the property with VAT;
  • opted to tax;
  • recovered input VAT;
  • incurred substantial refurbishment VAT;
  • and expected to make a taxable sale.

Disapplying the option may turn the disposal into an exempt supply.

That could affect the seller’s input VAT recovery and:

CAPITAL GOODS SCHEME

position.

There was an important change in 2026.

From 29 July 2026, the Capital Goods Scheme threshold for land, buildings and civil engineering works increased from:

£250,000 TO £600,000

excluding VAT.

Existing capital items already within the scheme remain within it for their normal adjustment periods.

HMRC – Changes to the VAT Capital Goods Scheme

That may affect the seller’s willingness to accept VAT1614D and therefore the commercial negotiations.


Don’t Forget Capital Allowances and Section 198

When acquiring an existing commercial building, VAT and SDLT aren’t the only tax issues.

There may be valuable capital allowances within:

  • electrical systems;
  • heating;
  • hot-water systems;
  • air-conditioning;
  • ventilation;
  • lifts;
  • and other qualifying fixtures and integral features.

Before acquisition, establish:

  • what allowances have previously been claimed;
  • whether expenditure has been pooled;
  • what fixtures are included;
  • and whether a Section 198 election is required.

This can be particularly important where the building is about to be converted to residential use.


What Happens After Acquisition?

The acquisition is only stage one.

A commercial-to-residential development can potentially encounter several VAT treatments.

Buy

Potentially:

VAT1614D → exempt

or:

TOGC → outside scope

or:

share purchase → VAT-exempt shares

or:

standard-rated property acquisition

Convert

Qualifying residential conversion works may potentially be:

5% VAT

Sell

The first qualifying grant of a major interest following a non-residential conversion may potentially be:

ZERO-RATED

HMRC sets out the conditions in VAT Notice 708.

HMRC – Buildings and Construction, VAT Notice 708

Retain and Rent

Ordinary residential rents are generally:

VAT EXEMPT

which can restrict input VAT recovery.

This is why the:

EXIT STRATEGY

needs considering before the acquisition.


Four Routes to the Same Development Opportunity

Suppose a developer identifies a £1.5 million office building suitable for conversion into flats.

There could potentially be four routes.

Route 1 – Buy the Building

Vacant and ready for conversion.

Consider:

VAT1614D


Route 2 – Buy the Existing Property Business

Tenants remain and the developer genuinely continues collecting rents while seeking planning.

Consider:

TOGC


Route 3 – Buy Bicknell Property Investments Ltd

The company already owns the property.

Consider:

SHARE PURCHASE

with:

  • 0.5% Stamp Duty;
  • generally VAT-exempt shares;
  • no direct SDLT acquisition of the underlying land at that stage;
  • but historic liabilities and latent tax exposures.

Route 4 – Secure the Site Now and Buy Later

Planning uncertain.

Consider:

OPTION TO PURCHASE

or:

CONDITIONAL CONTRACT

and review the VAT and SDLT consequences at each stage.


Developer Acquisition Decision Tree

WHO OWNS THE PROPERTY?

Individual or another business selling the property?

↓

ARE YOU BUYING NOW?

YES

Vacant for immediate residential conversion?

→ VAT1614D?

Existing rental business genuinely being continued?

→ TOGC?

NO

Seeking planning first?

→ OPTION?

→ CONDITIONAL CONTRACT?


Property already sits inside a limited company?

↓

Could you buy:

THE COMPANY RATHER THAN THE PROPERTY?

↓

Consider:

0.5% Stamp Duty

No direct SDLT land acquisition at that stage

VAT-exempt share transaction

BUT:

Historic liabilities

Latent Corporation Tax

Due diligence

Financing

Tax covenant and warranties


15 Common Mistakes

1. Assuming an opted building automatically means 20% VAT

VAT1614D may disapply the option.

2. Waiting until completion to consider VAT1614D

HMRC’s timing requirement can be much earlier.

3. Assuming exchange is always the relevant deadline

The test is when the price becomes legally fixed.

4. Using VAT1614D despite intending to continue a significant commercial use first

The intended-use conditions need to be checked carefully.

5. Assuming every tenanted building is a TOGC

A genuine business must be transferred and continued.

6. Assuming future residential conversion automatically prevents TOGC

It doesn’t necessarily do so if a genuine property business is actually continued initially.

7. Inventing a short rental period simply to obtain TOGC treatment

The continuing business activity must be real.

8. Treating VAT1614D and TOGC as interchangeable

They are fundamentally different VAT treatments.

9. Forgetting the buyer’s option-to-tax requirements for a property TOGC

These can be critical.

10. Assuming buying a property company means buying only the property

You acquire the company’s history and liabilities.

11. Ignoring latent Corporation Tax when valuing shares

The company’s property retains its tax history.

12. Assuming a property revaluation creates a new tax base cost

It doesn’t automatically do so.

13. Assuming an option premium has no VAT consequences

An option to purchase is itself an interest in land for VAT.

14. Ignoring SDLT on VAT

VAT actually payable can increase SDLT chargeable consideration.

15. Forgetting capital allowances

Check fixtures and Section 198 before the commercial building becomes residential.


Pre-Acquisition Checklist

Before committing to a commercial-to-residential project, ask:

Who owns the building?

Could a share purchase be considered?

Has the seller opted to tax?

Obtain evidence.

What are we buying?

Property, business, shares or merely an option?

What happens immediately after acquisition?

Convert, continue renting or wait for planning?

Could VAT1614D apply?

Check the residential intention and timing.

Could TOGC apply?

Check whether a genuine business is being transferred and continued.

Is the property company itself for sale?

Compare asset purchase and share purchase.

Are we seeking planning before committing?

Consider an option or conditional contract.

What is the SDLT or Stamp Duty position?

Don’t assume they produce the same result.

What historic tax liabilities exist?

Especially with a share purchase.

Is there a latent property gain?

Consider this when valuing the company.

Are there capital allowances?

Check pooling and Section 198.

Is the property within the Capital Goods Scheme?

Review both buyer and seller consequences.

What is the exit?

Sell, grant a long lease or retain and rent?


Frequently Asked Questions

What is VAT1614D?

VAT1614D is HMRC’s prescribed certificate used in qualifying circumstances to disapply an option to tax where a building is intended for conversion into dwellings or qualifying residential use.

When should VAT1614D be given?

HMRC says it should be given before the price is legally fixed. This can potentially be before exchange, depending on the transaction documentation.

Can VAT1614D be used for an office-to-flat conversion?

Potentially yes, provided the conditions are satisfied.

Can a tenanted commercial building qualify as a TOGC?

Potentially yes. HMRC specifically recognises transfers of let and partly let properties as capable of being property-rental-business TOGCs.

Can I continue collecting rent while seeking planning permission?

Potentially. HMRC does not prescribe a minimum continuation period, but the business activity must genuinely continue rather than being an artificial or instantaneous arrangement.

Can I buy the company instead of the property?

Potentially yes, where the property is held within a company and the shareholders are prepared to sell their shares.

Is SDLT payable when I buy a property company?

The acquisition of shares is not itself a direct acquisition of the underlying land for SDLT purposes. Existing UK company shares are generally instead within the Stamp Duty/SDRT regime, normally at 0.5%, subject to the particular circumstances.

Is VAT charged on shares in a property company?

HMRC’s position is that the supply of shares in a property-owning company is generally exempt from VAT.

Does buying the shares reset the property’s tax value?

No. The company continues to own the same property with its existing tax history.

Can I move the property after buying the company?

Potentially. SDLT group relief and Corporation Tax no gain/no loss provisions may be available where their respective group conditions are satisfied, but withdrawal and degrouping rules must be considered.

What is the SDLT group-relief withdrawal period?

The principal withdrawal rule can apply where the purchaser leaves the relevant group within three years or under arrangements made within that period.

What is the Corporation Tax degrouping period?

A degrouping charge can potentially arise where a company leaves a group owning an asset acquired from another group member within the previous six years.

Is an option to purchase property subject to VAT?

Potentially. HMRC treats the grant of a call option as a supply of an interest in land and its VAT treatment generally follows that of the underlying property at the time the option is granted.

Does VAT on the option determine VAT on the eventual property purchase?

Not necessarily. They are separate supplies and the eventual property transaction needs to be considered on the facts existing at that time.


The Most Important Question Isn’t “How Much VAT Is There?”

When a developer finds a commercial building suitable for residential conversion, the first instinct is often:

“How much is the property?”

But before signing anything, some equally important questions are:

WHO OWNS IT?

WHAT EXACTLY ARE WE BUYING?

WHAT WILL WE DO WITH IT IMMEDIATELY AFTER COMPLETION?

WHAT IS OUR EVENTUAL EXIT?

The same development opportunity could potentially involve:

VAT1614D

or:

TOGC

or:

BUYING THE PROPERTY COMPANY

or:

AN OPTION TO PURCHASE

And each route has different consequences for:

VAT + SDLT + STAMP DUTY + CORPORATION TAX + CAPITAL ALLOWANCES

This is why the acquisition tax review should happen:

BEFORE THE DEAL STRUCTURE IS AGREED

not after completion.


How Bicknell Business Advisers Can Help

At Bicknell Business Advisers, we work extensively with property investors and developers and can help with the tax and accounting implications of commercial-to-residential projects, including:

  • VAT1614D;
  • options to tax;
  • Transfers of Going Concerns;
  • property-company acquisitions;
  • asset purchase versus share purchase considerations;
  • purchase options and conditional acquisitions;
  • 5% residential conversion VAT;
  • zero-rated first major interests;
  • VAT registration and recovery;
  • partial exemption;
  • Capital Goods Scheme issues;
  • capital allowances;
  • Section 198 elections;
  • group structures;
  • SDLT considerations;
  • CIS;
  • and Corporation Tax.

A £1 million building can potentially involve:

£200,000 VAT

before development has even started.

But VAT may only be one part of the acquisition decision.

The key is to establish the:

PROPERTY + OWNERSHIP + ACQUISITION STRUCTURE + INTENDED USE + EXIT

before committing to the transaction.


Related Reading

This article forms part of our Property Development VAT series.

Start with:

Commercial to Residential Conversion VAT – 5%, 0% or 20%?

Also see:

Zero Rating Commercial Conversions – First Grant of a Major Interest

Is There VAT on Part-Complete Conversions?

Practical Issues of Reduced VAT on Conversions

Permitted Development – VAT Zero Rating

When Do You Need a Certificate for 5% VAT on Building Work?

VAT Implications of Converting Commercial Buildings to Residential

How Do You Get Zero VAT Using the 10-Year Rule?


Next in This Series

First Grant of a Major Interest – When Can a Residential Conversion Be Zero-Rated?

That will examine the other end of the development journey: when the first qualifying sale or long lease following a non-residential conversion can potentially be:

ZERO-RATED RATHER THAN EXEMPT

About the Author

Steve Bicknell FCMA, CGMA is Managing Director of Bicknell Business Advisers Limited, specialising in property taxation, landlord tax planning, SDLT, Capital Gains Tax and property company structures throughout the UK.