VAT on Land Purchases: What Builders and Developers Need to Know
Avoid costly VAT surprises when buying land for your next project.
Thinking of buying land for a new build, development, or commercial unit?
Before you sign on the dotted line, there’s something crucial to check: the VAT treatment.
VAT on land purchases can be confusing, and getting it wrong could cost thousands—or delay your project.
This guide breaks it down in plain English so you know what to expect and how to plan.
Is There VAT on Land in the UK?
Most land and property sales are exempt from VAT by default.
That means no VAT is charged—and no VAT can be reclaimed.
BUT…
There are exceptions, and this is where things can get tricky.
When Is VAT Charged on Land?
The seller (vendor) may opt to tax the land—also known as an Option to Tax.
This means:
✅ They must charge 20% VAT on the sale
✅ You can usually reclaim that VAT (if you’re VAT-registered and eligible)
Why would they opt to tax?
To recover VAT they paid on earlier costs—like buying the land or developing it.
Example: You Buy Land for £500,000 + VAT
- Sale price: £500,000
- VAT charged: £100,000
- Total you pay: £600,000
If your business is VAT-registered and using the land for a taxable activity (like building new homes or commercial property to sell/rent), you can usually reclaim the £100,000 VAT.
💡 Check with your accountant before assuming the VAT is recoverable—rules vary depending on your end use.
Key Questions to Ask Before Buying Land
- Is the land opted to tax?
Ask the seller if they’ve made an “Option to Tax.” If they have, VAT will be added. - What’s your intended use of the land?
- Building new houses? → Usually zero-rated
- Commercial build for rent? → Standard-rated
- Long-term residential letting? → Exempt (and you may not be able to recover VAT)
- Are you VAT-registered?
If not, you won’t be able to recover the VAT paid—even if you could otherwise claim it. - Are you buying a TOGC (Transfer of a Going Concern)?
If the land already has tenants or is part of a trading business, you may be able to avoid VAT altogether by treating the sale as a TOGC. This needs careful planning and advice.
What About Land for Residential Developments?
If you’re building new homes to sell, that’s typically zero-rated for VAT purposes.
That means:
- You don’t charge VAT on the sale of the new homes
- But you can usually reclaim VAT on land and construction costs
- You’ll likely want the land to be VAT-charged, so you can recover the VAT
But if the land is VAT-exempt, and you’re not careful, you could end up with trapped VAT—VAT you’ve paid but can’t reclaim.
How to Protect Yourself
📝 Do your VAT due diligence before making an offer:
- Get written confirmation of the VAT status from the seller
- Involve your accountant or solicitor early
- Factor VAT into your funding and cash flow
- If needed, you can opt to tax the land yourself—but only if you own it or have a lease of 6+ years
Conclusion: Don’t Let VAT Trip Up Your Project
VAT on land is one of the most complex areas in property and construction. One wrong assumption could cost tens of thousands—or make your project less profitable.
Always get specialist advice before completing any land purchase.
📞 Need help checking the VAT treatment before buying land?
We advise builders and developers across the UK.
Get in touch and let’s make sure your next purchase is VAT-smart.