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D6
Opt to Tax vs Not
Opting to tax lets you recover VAT on your costs but adds 20% to the rent. The right call depends on your input VAT and your likely tenants.
Compare your options
Opt to tax
Pros
- Recover input VAT on purchase and refurbishment
- Neutral to VAT-registered tenants
- Consistent VAT treatment
Cons
- 20% VAT on rent and sale
- 20-year commitment
- Deters VAT-exempt tenants
Best for: Significant recoverable input VAT and a VAT-registered tenant base.
Do not opt
Pros
- Rent stays exempt (no 20% for tenants)
- Attractive to exempt occupiers
- No long-term commitment
Cons
- Cannot recover input VAT
- VAT on costs is a sunk cost
- Less flexible on a future sale
Best for: Little input VAT to recover, or tenants who cannot reclaim VAT.
Worked scenarios
Bought with 100k of recoverable VAT, tenant is a trading company
| Option | Outcome |
|---|---|
| Opt | Usually yes: recover the VAT, tenant reclaims the rent VAT. |
| Do not opt | Leaves the input VAT unrecovered. |
Tenant is a charity or bank (VAT-exempt)
| Option | Outcome |
|---|---|
| Opt | Adds 20% to their real cost and can deter them. |
| Do not opt | Often better for lettability, at the cost of VAT recovery. |
Decision checklist
- Add up the input VAT you could recover on purchase and works.
- Identify the likely tenant profile and whether they can reclaim VAT.
- Remember the 20-year commitment and the 6-month cooling-off.
- Consider the effect on a future sale and any TOGC.
- Notify HMRC within 30 days if you opt.
Relevant tools
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