VAT jargon buster
In order to help you understand the complex language of VAT in respect of any property transactions or dealings that you are involved in, our VAT property specialists have identified some of the most frequently occuring (and potentially confusing) terminology and provided some straighforward definitions:
- Anchor tenant – where a landlord gives an inducement to an incoming tenant whose presence will attract other tenants to enter into leases.
- Annex(e) – an extension/addition to a building.
- Anti-avoidance warranty – a statutory warranty given by the buyer where a tenanted property subject to the option to tax is sold as a TOGC.
- Approved alteration – A structural alteration to the fabric of a listed building where listed building approval was required, sought and obtained.
- Assignment – typically where a tenant is looking to vacate and transfers his leasehold interest to an incoming tenant. An assignment can result in a surrender and re-grant.
- Capital goods scheme – a mechanism for spreading the input tax incurred on computer equipment exceeding £50,000 or property exceeding £250,000 of standard-rated cost
- Change in the number of dwellings conversion – where a house is converted into flats or vice versa, or a non-residential building is converted for use as a dwelling(s), and refers to situations where the 5% reduced rate may apply to construction services.
- Consideration – something that is done or given in exchange for something else. Consideration can be in monetary or non-monetary form.
- Conversion – refers to the conversion of a non-residential building to one designed for use as a dwelling(s).
- Curtilege – the area immediately surrounding a building that is regarded as part of the property.
- Designed as a dwelling – a property originally designed for use as a dwelling, irrespective of any subsequent alternative use to which the building may have been put.
- Disapplication – refers to a situation where the VAT position of a tenant or buyer of a property can render the vendor’s/landlord’s option to tax ineffective.
- Dwelling – a place of residence where somebody will live in as a ‘home’.
- Exempt supply – a supply that is exempt from VAT by law. It is not a taxable supply and generally does not allow the recovery of VAT incurred on associated expenditure.
- Grant – the supply of an interest in land.
- In the course of construction – building works that take place and are related to the construction of a building prior to its completion.
- Input tax – VAT incurred on expenditure associated with business activities.
- Interest in or right over land – whether it be owning the lease, freehold or paying rent, that person has an interest/right over the land granted to that person.
- Licence to occupy – a person is given a license/permission to occupy land that falls short of a formal tenancy.
- Listed building – A building that is protected by the State – Grade I or II listed and is, or is intended to be, used as a dwelling. Beneficial VAT rules can apply for building works.
- Major interest – the grant of a freehold interest or a lease for a term exceeding 21 years in England, Wales and Northern Ireland, 20 Years in Scotland.
- New building – has a specific meaning in VAT to refer to a commercial building less than three years old where a freehold disposal is compulsorily standard-rated.
- Non-residential – A building not used as a dwelling.
- Option to tax – sales or lettings of a building are generally exempt. However with commercial buildings the landlord can elect to waive exemption such that future lettings or disposals are subject to VAT. This election is commonly called the ‘option to tax’. This can be an advantage as it allows recovery of input tax on costs where exemption does not.
- Partial exemption – where a business incurs input tax on both taxable an exempt activities then it is partially exempt and will probably have to carry out calculations to apportion the VAT incurred on expenditure between that which can be claimed and that which cannot.
- Pre-election input tax – VAT incurred prior to opting to tax a building.
- Pre-registration input tax – VAT relating to the business activities that has been incurred prior to VAT registration.
- Relevant charitable purpose RCP – refers to the building’s use by a charity either for non-business purposes or for use as a village hall or similar.
- Relevant residential purpose (RRP) – refers to the building’s use as a dwelling or for certain other stipulated residential purposes.
- Reverse surrender – a situation where a tenant surrenders an onerous lease back to the landlord, but has to pay the landlord to take it back.
- Revocation - the ability to revoke an option to tax after three months or 20 years.
- Single Household Dwelling – a dwelling designed for occupation by a single household and refers to certain situations where the 5% reduced rate may apply on construction services.
- Substantial reconstruction – certain major works to a listed building where either at least 60% of the works qualify as structural alterations or the property is demolished so that no more than one wall or two corner walls remain standing.
- Supply – the providing of goods or services normally in return for payment (consideration)
- Surrender – a situation where a tenant surrenders his valuable lease back to the landlord in return for payment from the landlord.
- Taxable supply – a supply subject to UK VAT at the standard, reduced or zero-rate. A taxable supply allows the recovery of VAT incurred on associated expenditure.
- TOGC – Transfer Of Going Concern, - the sale of the assets of a business as a going concern - a beneficial situation in most circumstances since, if applied correctly, no VAT is charged also saving Stamp Duty Land Tax in many situation.
- Zero-rated – a taxable supply subject to UK VAT at a rate of 0%.
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