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HMRC internal manual

VAT Land and Property

HM Revenue & Customs
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Taxable person: land and buildings owned by more than one person: who makes the supply?

Current VAT legislation sets a simple and objective test:

Which person receives the benefit of the sale proceeds, rents etc from the property?

That person is deemed to have made the supply of the property. The relevant legal provision is at VAT Act 1994, Schedule 10, paragraph 40:

‘40(1) This paragraph applies if the benefit of the consideration for the grant of an interest in, right over or licence to occupy land accrues to a person (‘the beneficiary’) other than the person making the grant.

40(2) The beneficiary is to be treated for the purposes of this Act as the person making the grant.

40(3) So far as any input tax of the person actually making the grant is attributable to the grant, it is to be treated for the purposes of this Act as input tax of the beneficiary.’

Thus the legal ‘test’ not only identifies the person making the supply, but also gives that person the entitlement to input tax relating to that supply of the property.

However, paragraph 40 only applies where the benefit of the consideration (or any part of it) is received by someone other than the person who made the grant.

The person to whom the benefit of the consideration (sale proceeds, rents etc) accrues need not necessarily be the person who first receives payment. An example of this is where a mortgagee (bank, building society) sells a building under the power of sale, which has arisen because the mortgagor (the borrower) defaulted on their repayments. The sale proceeds are used to discharge the mortgagor’s debt, and so the mortgagor receives the benefit.

A further problem is that some types of trust deal with income (such as rent) and capital rights (sales proceeds) in different ways (see VATLP04250 (h)(ii) below)