LAND - 13.01.2022

Changes to land and property supplies?

The government issued a call for evidence in May 2021 about making major changes to the VAT rules for land and property supplies. What does this mean for your business?

Review. The government rightly recognised that the VAT rules for land and property are in urgent need of simplification because they are very complex and often involve large amounts of tax. Most developers and property investors need specialist VAT support to help get things right. It therefore issued a call for evidence in May 2021. There was also an intention to make the rules “more fair” to all parties. The government produced its final report on 30 November 2021 (see The next step ).

Response. The report confirmed that it received 73 responses from different tax bodies and businesses, which expressed big reservations about the proposed changes. It was agreed that proposals to make more land and property deals taxable rather than exempt might simplify procedures, but they will also create unfairness and large VAT bills for those businesses unable to claim input tax, e.g. charities or businesses that are partly exempt. While the changes might have simplified some issues, they would also have created complexity in other areas.

Tip. The main decision was that no changes to the law will be made in the short or medium term.

Communication. There was positive news that there will be improved guidance in HMRC’s published notices and manuals on several grey areas, including dilapidations, overages, call options and rights of light.

Option to tax. There is also a plan for HMRC to keep an improved register of option to tax elections made by businesses for properties. This will hopefully reduce delays in getting confirmation from HMRC about your past option to tax elections. This can currently take over eight weeks and can sometimes delay a property sale.

For a link to the report, visit https://www.tips-and-advice.co.uk , Download Zone, year 12, issue 3.

You will not need to check for new VAT rules on land and property for your deals in the short or medium term. Improved guidance on VAT and dilapidation payments is on the way and should be reviewed if you act as a tenant or landlord.