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Option to tax - after sale |
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If a land transaction will be exempt from VAT, the seller can elect to waive
the exemption to VAT. This means that the buyer will have to pay VAT on the
purchase price.
Do not forget that the seller’s notification has to be made within 30 days.
This means that the election can be made after completion (so making the
buyer liable to pay an additional amount). This is why contracts for the sale
of land should always specifically deal with any liability to VAT, and why
specific preliminary inquiries should be raised by the buyer regarding the
VAT status of the property and the seller (plus a warranty that the seller will
not exercise the election to waive the exemption to VAT – assuming the
buyer cannot recover the VAT). If you do not have such clauses, then there
is potential for disaster (as happened in a recent case, where the buyer was
liable to pay an extra amount in respect of unexpected VAT). Marlow Gardner
v The Commissioners of Revenue [2006] EWCH 1612 (Ch). Source:
www.practicallaw.com.
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September 2006 |
