VAT on land access for services

[divorcingjack]

Morning all, 

 

Quick VAT question for all you experts. In order to connect our plot to the most convenient location for sewerage and water, we need to cross third party land for about 5m. We have met the landowner and he mentioned a "small consideration" for crossing the land, which we were expecting. Turns out, his idea of a small consideration is quite radically different from ours. He has quoted £X0000, PLUS VAT and then legal fees on top. 

 

So, my question is - can he charge us VAT on this, and if so, is it reclaimable? 

 

Negotiations continue, but unfortunately he's got us over a barrel if we want to use that access point. There are alternatives, but they involve potentially digging up a large section of cobblestoned and paved public pavement and road .....

[Temp]

You should seek professional advice. Google found..

 

https://www.gov.uk/government/publications/vat-notice-742-land-and-property/vat-notice-742-land-and-property

 

Granting a right of access is considered a "supply of land" according to...

 

2.2 How do I make a supply of land?

You make a supply of land by making a grant of an interest in, right over or licence to occupy land in return for a payment or consideration....

 

From 2.4..

UK law currently exempts the supply of rights over land. However, these are often supplied together with freehold or leasehold interests in land and form part of a single supply. For example, a lease may be granted of a single floor in an office block with an easement over the common areas, such as reception and lifts, to allow the lessee to access his floor. In such cases the supply of the right over land (in this case the easement) will share the same tax treatment as the principal supply.

 

So it looks like the grant of a right of access is exempt from VAT unless the deal is part of something else that is VAT rated. 

 

However I'm dimly aware of another issue that might make it liable to VAT... In some situations land/property owners can "opt to tax" land as it allows them to reclaim VAT paid on developing the property. If they do opt to tax then I think things like rental income is liable for VAT when it might not otherwise be. I don't know if this changes the VAT situation on a grant of access but I suppose it might. Check if the land owner has already made such an "option to tax" on the land. If not then this isn't an issue. If he has then it might/might not be and more investigation needed. 

 

Either way you would still have to pay VAT on their and your legal fees and I don't think these can be reclaimed.  

 

[CC45]

the option to tax is used by land owners because as stated it then allows them to reclaim input vat on what would otherwise would be an exempt supply (no input vat reclaim) - however the option to tax can apply to small parcels of land & not the entire holding.  The small parcel of land must be discrete i.e. has defined boundaries i.e. a hedge.  The option to tax is not uncommon.

[divorcingjack]

Very useful responses, @Temp and @CC45, thank you. I probably should have mentioned that we are in Scotland - any idea whether the law on this differs here? I know property law can vary considerably. 

 

dj

[Temp]

I couldn't find anything that said Scotland was different.

 

I did find a reference to the Land and Buildings Transaction Tax...

 

https://www.out-law.com/en/topics/tax/property-tax-/land-and-buildings-transaction-tax--in-scotland/

 

which says

 

LBTT is payable on land transactions where the land is in Scotland. A 'land transaction' is any "acquisition of a chargeable interest". This is widely defined and can include the transfer of a  property and the grant,  assignation, variation or surrender of a lease as

well as some other less common transactions. Options in land, licences to occupy land and statutory rights such as community interests in land are also chargeable interests.

 

my bold.

 

However the rate appears to be 0% on transactions under £145K ??

[CC45]

Hi,  I will ask some experts in work and get back to you if I find anything out.

[Thedreamer]

• No difference in VAT law between Scotland and England.

 

• LLBT tax is the recently devolved tax to Scottish parliament equivalent of Stamp Duty.

 

• Option to tax usually occurs in commercial property where an incentive existed in the past to claim input VAT. I.e you construct an office block and seek to reclaim VAT on the construction costs, option to tax is applied and agreed with HMRC. When the property is sold or rented you charge VAT on top of the sale or rental proceeds. If you are the tenant and are VAT registered it can be reclaimed on their returns, if not you just suffer the rental price with VAT on top.

 

• My question would be, what would have been the incentive for the landowner to opted to tax a parcel of land?. Might be worth confirming with the seller this and mentioning that land is generally VAT exempt (unless the option to tax has been applied) even if the seller is VAT registered. 

 

• If the land and property is commercial and has been opted to tax in the past you might have a problem, as I can't remember seeing this on the HMRC VAT manuals. You might need to get a professional opinion from an accountant or solicitor.

 

• I would be quite interested if an amount of VAT would be payable whether this would then be reclaimed on the DIY Self Builders VAT scheme upon completion it probably one that you would need to check with the HMRC. But my gut feeling would be no.

 

Hope that helps.  

[AliG]

No further comment necessary on the VAT.

 

As you say he has you over a barrel. Generally the value of something like this is calculated by looking at the value of the land you own with and without the easement. Clearly without sewerage or water then the land value would collapse.

 

However, you say that there is another option. Other people have quoted a cost of around £250 a metre to dig up a public road. Depending on the distance, if he is looking for £10,000 plus, I would have thought that digging up the road is probably cheaper. At least get the cost for comparison. Of course if he knows that this is your alternative he is going to want close to whatever this will cost.

 

Digging up the public road will require permits etc, but not legal fees or negotiations with potential conditions being set by a third party.

 

 

[jamiehamy]

Can I check what you/the landowner is proposiing here? Is it the purchase of a pocket of land, or effectively a wayleave type agreement which provides permission to run sewage across the land and secures it against development/being removed in the future?

 

 

 

 

 

 

[Temp]

On ‎1‎/‎23‎/‎2018 at 09:04, divorcingjack said:

Negotiations continue, but unfortunately he's got us over a barrel if we want to use that access point. There are alternatives, but they involve potentially digging up a large section of cobblestoned and paved public pavement and road

 

Best get a quote to do that. Then at least you have something to compare his generous offer with, or perhaps beat him down with.

 

Perhaps you could mole under the cobbles to avoid digging them up and relaying?