VAT on commercial property purchases
Many commercial properties are sold with 20% VAT on top. Whether you can reclaim it, and how you fund it in the meantime, changes the cash you need at completion. Here is the short version; your accountant has the long one.
Why VAT appears at all
The sale of commercial property is normally exempt from VAT, but an owner can opt to tax the property, usually to reclaim VAT on their own costs. Once opted, VAT at 20% is charged on the sale and on the rent. Most modern commercial property and most property owned by companies and funds is opted.
What it means for you
- VAT-registered buyer using the property for a taxable business: you pay the VAT at completion and reclaim it on your next return, typically a one to three month gap you must fund. Some lenders offer a short VAT loan; bridging lenders do it routinely.
- Investor buying a let property: if the sale qualifies as a transfer of a going concern (the tenant and lease continue, you opt to tax before completion and are VAT registered), no VAT is charged. Get the TOGC conditions right or you pay 20% you cannot get back.
- Non-registered buyer, or a pension scheme that has not opted: the VAT is a real cost. On a £400,000 property that is £80,000. Factor it in or negotiate.
- Stamp duty is charged on the VAT-inclusive price, so VAT on the purchase also increases the stamp duty.
Questions to ask before you offer
- Has the seller opted to tax? (Ask for the HMRC acknowledgement.)
- Will the sale be a TOGC, and what do I need to do by when?
- Am I, or should I be, VAT registered and opted to tax myself?
- How will I fund the VAT between completion and reclaim?
VAT on property is a specialist area; a wrong step is expensive and hard to unwind. This is a description, not advice. Speak to an accountant who does property VAT before exchange.
A note on the numbers. Rates, loan-to-value limits, fees and criteria are typical figures at the time of writing (2026). Commercial lending is priced case by case, so your own terms depend on the property, the business, the tenant and you. This is information, not advice, and not an offer of finance.
Quick answers
Can the mortgage cover the VAT?
Term lenders lend on the net value, not the VAT. A short-term VAT loan or bridge covers the gap until HMRC repays it.
If I opt to tax, do I have to charge VAT on the rent?
Yes, to your tenants. Fine if they are VAT registered businesses; a problem if they are exempt (charities, some financial and medical businesses).
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