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Tax charge on non-consumption?
Key points
- Time of supply on a freehold sale of commercial property.
- HMRC statements on forfeited payments.
- Increased risk of forfeiture on purchase contracts.
- VAT on a deposit forfeited on an opted freehold.
- Buyers may be asked to pay VAT on deposits.
On a freehold sale it is traditional to take a 10% deposit. Commercial real estate lawyers know that for VAT purposes the time of supply depends on the nature of the deposit as follows:
- if the deposit is held as stakeholder the time of supply is when the deposit is released on completion of the transaction;
- if the deposit is held as agent for the seller the time of supply is when the deposit is paid or released to the seller.
There is a logic to this because when a payment is held as a stakeholder the monies are not released to the seller – they...
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