VAT and Golden Brick Arrangements

Commercial property (including land for development) is exempt from VAT unless an owner has elected to opt to charge VAT. Sellers often make such an election to enable them to charge VAT, usually at the standard rate, (currently 17.5% although rising to 20% in January 2011). This is so that they can recover VAT on their costs incurred on the land and related professional fees etc. However, Registered Social Landlords (RSLs) are generally unable to recover VAT they incur in connection with rented properties and are limited in what they can recover in relation to shared ownership schemes. This means that RSLs may have to pay any VAT on top of a purchase price, which would represent an additional cost to them. The conflicting VAT interests of a Seller and RSL can be the cause of a breakdown when negotiating the purchase of a development site.