Readers’ forum: VAT payback rules for sale of land

VAT

I act for a client who is a big property developer and is VAT registered. Five years ago the client purchased a plot of land to building houses and sell them.

He incurred input tax of about £20 000 on professional fees to get planning permission which was successful and claimed this input tax on his VAT returns.

However he actually sold the land to another developer three months ago for a healthy profit incurring a further £2 000 VAT on legal fees which he has also claimed. He never started any building work – it was a sale of bare land. The sale was exempt because my client never opted to tax the land.

I am aware of the payback and clawback rules for VAT but my understanding is that the £20 000 of VAT incurred five years ago is averaged out...