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HMRC internal manual

VAT Time of supply

Tax points for specific types of supply: land and property: deposits

It is common for a contract for the sale of the freehold interest in land to require the payment of a deposit by the purchaser at the time contracts are exchanged. This may be payable either direct to the vendor or to a solicitor acting as the vendor’s agent.In either case, receipt of the deposit creates a tax point for the vendor under section6(4) of the VAT Act 1994 (see VATTOS2225), to the extent of the amount received.

Alternatively, the contract may specifically provide for the deposit to be received by a third party (again this can be the vendor’s solicitor) acting in the capacity of a stakeholder. Under these arrangements the stakeholder will hold the money on behalf of both parties, pending satisfactory performance of the contract.

It is accepted that, in these circumstances, the payment cannot be said to have been received by the vendor for VAT time of supply purposes, until it is eventually released by the stakeholder. Although less common, the Scottish equivalent to this is the practice of placing the money on joint deposit.