Option to Tax — Commercial Purchase Structuring

An investor purchasing a commercial unit for around £325,000. The vendor had opted to tax the property. This meant VAT of £65,000 was chargeable on the purchase — taking the total cost to £390,000. The client discovered this 4 days before exchange. They had budgeted £325,000 and did not have an additional £65,000 available. The client was not VAT-registered and was unsure whether registration would help or create further complications. They were under pressure from the vendor to exchange and close.

Reviewed the transaction structure, the client’s intended use of the property, and the existing tenancy arrangements. The property was let to an existing tenant and would continue to be let after purchase — making this potentially a Transfer of Going Concern (TOGC). If TOGC conditions are met, the transaction falls outside the scope of VAT entirely. No VAT is charged. But the buyer must opt to tax the property and be VAT-registered before completion. Verified the TOGC conditions: the property was let, the tenant was remaining, the buyer would be carrying on the same economic activity (rental), and the buyer would opt to tax and register for VAT before completion. Registered the client for VAT and processed the option to tax notification before the completion date. Also reviewed the downstream implications: the option to tax means the client must charge VAT on rents unless the tenant is residential or the exempt land exemption applies.

£65,000 in VAT avoided through proper TOGC structuring. Transaction completed on time. Client now VAT-registered with ongoing compliance obligations understood and managed. The existing tenant arrangement was preserved.