A leading independent property consultancy with expertise covering a broad spectrum of property related services

Opting to tax: applications for rural properties

Annie Lane reports on a farm steading sale that avoided VAT.

We would always recommend seeking advice from a chartered accountant but we thought it might be helpful to share a recent experience involving a little-known tax rule. 

Our instruction involved the sale of a farm steading owned by our client. The steading sat on the edge of our client’s estate, so the building was not deemed to be an integral part of the estate and therefore disposal would not have a detrimental effect on the estate as a whole. 

The building comprised a stone-built steading under a slate roof next to the public road and on the periphery of a local town. It had been used for farming in the past but was not suitable for modern agricultural purposes and no longer used as part of the farm. 

Along with the rest of the farm the building had been opted to tax. Put simply, opting to tax land and buildings has the effect of being able to reclaim VAT on costs, but equally VAT is chargeable on rent and sales. 

There were two key points in disposing of the steading: 

  1.  The subjects comprised a building intended for conversion to a dwelling, as opposed to a plot of land, 
  2. The purchaser was intending to occupy the building as their own residence.  

As a result, the purchaser, via their solicitor, was able to complete an HMRC “certificate to disapply option to tax” which they provided to the seller with the result that VAT was not chargeable on the sale of the building. 

The offer had been submitted inclusive of VAT, and it would have been reduced by 20% if VAT had been applicable, so the effect of the certificate was that the full value of the offer was achieved by our client, maximising the capital released for various works and improvements to other properties on the estate.