While VAT is not automatically applied on the sale of property or land, and certain properties do require a standard 20 per cent VAT payment. According to estate agents in Leeds, commercial properties that are newly built usually levy a 20 per cent VAT payment whereas residential property sales are usually exempt from VAT. To understand when VAT is levied and when it is exempt, you need to understand the basic rules of VAT in the UK. For one, certain properties are VAT exempt while there are certain properties that come under the zero-rated supply. And of course, there is the standard rate of VAT which is 20 per cent, usually applied on the sale of a good or service, as well as the reduced rate which is just 5 per cent VAT. So, as a seller, do you have to pay VAT while selling your home in the UK?
Do sellers have to pay VAT?
Legally, property disposals are exempt from VAT. The seller is not charged any VAT when he or she sells a property in the UK. Normally, when an individual is selling his or her house, he or she is not liable to pay any taxes on the sale of the property. VAT is not charged on the sale of a property in the UK. Similarly, the capital gains tax is also not charged on the sale of a residence. So, if the homeowner has been using that property as their main residence since the time they bought it, then no capital gains tax is levied on the sale of the residence.
So, do buyers have to pay VAT?
Well, as a buyer, if you buy a new build directly from a builder or a developer then you will have to pay 13.5 per cent VAT. However, if you buy an existing property, be it a house or a flat, then you do not have to pay VAT. Now, if you decide to pay for land from a land owner to build a house on that site, then you do not have to pay any VAT. But, if you have an agreement with a developer or a builder and the land owner to develop that site then you will have to pay VAT.
What taxes does a seller have to pay?
For one, the seller has to pay the estate agent’s fees. Usually, this fee is a certain percentage of the total sale price of the property plus VAT. So, for instance, if the estate agent has quoted their commission as 1 per cent of the selling price plus VAT, then the estate agent’s fees will amount to 1.2 per cent, which is 1 per cent of the total sale price plus 20 per cent of the fee as VAT. Estate agents are required to clearly state whether they charge VAT or not and whether their quoted fee is including or excluding VAT. Be sure to read the fine print carefully before signing the contract with your estate agent to determine whether you are required to pay VAT or not. Also, feel free to ask your estate agent if their fees are including VAT or not to get a better idea. At the end of the day, if the contract states that the estate agent’s fee is a certain per cent plus VAT, then you are legally obligated to pay the VAT.
What taxes does a buyer have to pay?
A buyer has to pay the Stamp Duty Land Tax on the purchase of property. During the Covid-19 pandemic, the UK government announced the stamp duty holiday which was a temporary suspension of stamp duty to boost the housing market. However, the stamp duty holiday came to an end in September 2022. For properties that are worth less than £250,000, there is no stamp duty. The stamp duty is fixed at 5 per cent for properties that are valued between £250,001 and £925,000. For properties between £925,001 and £1.5 million, the stamp duty is 10 per cent, whereas, for properties that are worth over £1.5 million, the stamp duty is fixed at 12 per cent. However, this is only applicable to first-time buyers. If an individual already owns property in his or her name, then he or she is liable to pay an additional 3 per cent on the purchase of property.
