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My father passed away last year and I am now selling his pub. When he bought the pub he paid VAT but this was from a pub company. Now we are trying to work out if VAT would need to be paid on the sale of the pub. It’s been closed since May 2020 and his personal VAT account was closed in June 2020 with final accounts. The pub is freehold. The accountant seems to suggest that it’s exempt based on section 742 of the VAT legislation act. But the estate agents seem less sure. Any advice would be welcome.
742 is HMRC’s published guidance on land and property. It’s available on their website here: https://www.gov.uk/guidance/vat-on-land-and-property-notice-742
By default, sales of land and property are generally exempt. However (subject to meeting various conditions), the owners can opt to charge VAT. This is often done with commercial property, as it allows the sellers to reclaim any VAT that they incur on their costs, and the buyer can reclaim the VAT charged on their VAT return. Presumably this is what the pub company did.
Once a property has been “opted”, any sales of it by the person who made that option become subject to VAT. So perhaps the first question is who technically owns it at the moment?
If the property now belongs to you, in my opinion as you haven’t opted to tax it, your sale would be exempt from VAT.
However, if it still belongs to your father’s estate, I think that you need to establish whether he ever opted to tax it. If he did, the option to tax would probably still apply even though his VAT registration has now ended. See section 2.7 of HMRC notice 700/11: https://www.gov.uk/government/publications/vat-notice-70011-cancelling-your-registration/vat-notice-70011-cancelling-your-registration
I suspect that your father may not have opted to tax at the time of purchase. If he had, his purchase would probably have fallen within “Transfer of a Going Concern” rules – and he wouldn’t have been charged VAT by the pub company, despite them having opted. But I can’t be 100% certain of this – and even if he didn’t opt to tax at the time of purchase, he may have done later.
Many thanks. Dads estate sits with me as I have the administrative rights. The pub is now shared between me and my brother but we haven’t formally changed the title deeds as we were told to just wait given it was for sale. If that means it still formally his then how would I find out if he opted in for tax or not?
HMRC have a national Options to Tax unit – their email address is [email protected] . If you explain the situation and quote his former VAT registration number, they’ll be able to check whether he ever notified them of an option to tax.
I still think it’s unlikely, given that he was charged VAT on the purchase and (unless he let any areas of the pub out to anyone else) I can’t think of any reason to opt later. But always worth checking…
Hi. We are still waiting on the HMRC to confirm if my father opted to tax or not. If he has opted do we “have” to then charge VAT. Or is this still optional. If by inheritance law we own the pub and we have not opted to tax then does this even matter. At what point does the pub become officially ours?
Unfortunately I don’t know anything about inheritance laws, i.e. whether the property is at some point owned by you personally, as opposed to in your capacity as executor / administrator of the estate.
From a VAT perspective, an option to tax applies to all supplies by the person who made it – and that extends to an executor / administrator after that person’s death, because you’re effectively seen to be running their “business”. However, if the property is now owned by you personally, you will not be affected by any option to tax which may have been made by your father.
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