VAT on Property & Land

Key facts

Most sales and lets of land and buildings are exempt from VAT.
The option to tax converts an exempt supply into a standard-rated supply.
New residential buildings are zero-rated on first sale by the builder.
Commercial property conversions to residential may qualify for the 5% reduced rate.

The Default: Exempt

The sale, lease, or letting of land and buildings is generally exempt from VAT. This means no VAT is charged, but you also can’t reclaim input VAT on related costs.^[1]

The Option to Tax

You can “opt to tax” a commercial property, which means you charge 20% VAT on rent and sale proceeds. The main reason to do this is to reclaim input VAT on construction, renovation, or purchase costs.^[2]

Notify HMRC within 30 days using form VAT1614A
The option usually lasts for 20 years
Cannot be applied to residential property or certain buildings (e.g. hospitals)

New Residential Buildings

The first sale of a new residential building by the person who constructed it is zero-rated. The builder charges 0% VAT but can reclaim all input VAT on construction costs.^[3]

Conversions

Converting a non-residential building into residential property may qualify for the 5% reduced rate. Renovating a property that has been empty for 2+ years may also qualify.

Frequently Asked Questions

Is VAT charged on the sale of property in the UK?

Most sales and lettings of land and buildings are exempt from VAT. However, the option to tax can convert an exempt supply into a standard-rated supply, and new residential buildings are zero-rated on the first sale by the builder.

What is the option to tax on property?

The option to tax lets you charge 20% VAT on the rent or sale of commercial property. The main reason to opt is to reclaim input VAT on construction, renovation, or purchase costs. You must notify HMRC within 30 days.

Is VAT charged on new-build homes?

The first sale of a new residential building by the person who constructed it is zero-rated at 0% VAT. The builder can reclaim all input VAT on construction costs despite charging no VAT to the buyer.

What VAT rate applies to property conversions?

Converting a non-residential building into residential property may qualify for the 5% reduced rate. Renovating a property empty for two or more years may also qualify for the reduced rate.

Sources

VAT and property — GOV.UK
Option to tax land and buildings (VAT Notice 742A) — GOV.UK
VAT on construction and refurbishment — GOV.UK