VAT is one of the main differences between buying commercial and residential property. This is a general overview, not tax advice.
The default position
The sale or letting of most commercial property is exempt from VAT. That means no VAT is charged, but the owner usually cannot recover VAT on related costs.
The option to tax
An owner can "opt to tax" a commercial property. Sales and rents are then subject to VAT at the standard rate, and the owner can recover VAT on costs such as refurbishment. Many commercial buildings have been opted, so VAT is often added to the price and the rent.
New commercial buildings
The sale of a new commercial building, generally one less than three years old, is standard-rated regardless of the option to tax.
Transfer of a going concern (TOGC)
When a let building is sold with its tenant in place, the sale can be treated as the transfer of a property rental business. If the conditions are met, no VAT is charged on the price. The buyer usually needs to be VAT registered and to opt to tax before the relevant date.
Why it matters
VAT affects the price you pay, stamp duty (which is calculated on the VAT-inclusive price) and cash flow. Always take specialist advice. See HMRC Notice 742A.
This guide is general information, not financial, tax or legal advice. If you are unsure whether an investment is right for you, speak to a regulated financial adviser.