Commercial workshop – exempt supply?

Forum Categories VAT ON PROPERTY TRANSACTIONS Commercial workshop – exempt supply?

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    My business partner and I have been trading for 25 years but following his disastrous divorce my partner now wants to dissolve the partnership and realise his assets so that he can buy a small flat to live in.

    In 2005 we bought a derelict agricultural barn and constructed a new purpose built workshop on the site with B2 general industrial usage, which we have occupied from May 2006 for the purposes of our woodworking business. We appointed a number of specialist contractors to construct the workshop for us. VAT inputs were reclaimed through our normal VAT returns.

    We are now intending to subdivide the property into two, one of the workshops will be sold off by the partnership to realise its capital value. The partnership will then be dissolved and the assets split equally between ourselves with me retaining ownership of the second workshop as part of my share.

    So our estate agent has now asked the question “Please can you confirm whether VAT is chargeable on the sale price of your property, as this can be a key factor for some occupiers.”

    I understand the following:-

    We constructed the workshop as commercial premises for making taxable supplies from, which we have now done for 11.5 years.
    No ‘option to tax’ was sought from HMRC at point of construction or since.
    Our intention is not to reclaim any of the VAT inputs for the costs of converting to two workshops and any associated repairs.

    I think due to the passage of time that the workshop qualifies as an exempt supply and that there are no further VAT implications but would welcome any help or pointers from more informed members of this forum.

    Best regards

    Phil B

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