VAT when a receiver or lender sells a property

When a lender or a Law of Property Act receiver sells a commercial property to recover a debt, VAT law treats the sale as a supply made by the borrower, not by the lender or receiver. The sale is standard rated if it is the freehold of a new commercial building or the borrower has opted to tax, and is otherwise normally exempt. Where VAT is due, the person selling accounts for it on the borrower’s behalf on form VAT 833 within 21 days of the sale.

Whose supply is it when a lender sells under a power of sale?

The starting point is paragraph 7 of Schedule 4 to the Value Added Tax Act 1994. Where goods forming part of the assets of a business carried on by a taxable person are sold by someone else, under a power that person can exercise, in or towards satisfaction of a debt owed by the taxable person, the goods are deemed to be supplied by the taxable person in the course or furtherance of their business. Paragraph 4 of the same Schedule makes the grant, assignment or surrender of a major interest, such as a freehold, a supply of goods, so a sale of the property itself is caught.

HMRC’s guidance in VAT Notice 742, paragraph 9, puts it in plain terms. Mortgaging a property is not a supply of it. If a financial institution or anyone else sells your property in satisfaction of a debt you owe, you are making the supply, and if VAT is due the person selling is responsible for accounting for it. The borrower’s status and history with the building decide the liability, not the lender’s.

Because the deeming rule applies to a business carried on by a taxable person, a sale of property belonging to a borrower who is not a taxable person does not become a taxable supply simply because a lender is the one selling.

Foreclosure is different. Paragraph 9.2.2 of Notice 742 says that where a person obtains a court order and forecloses, the borrower makes a supply of the property to that person, which may qualify as a transfer of a going concern. The person foreclosing can opt to tax, and if they later sell, the sale is their own supply.

What is the position of a Law of Property Act receiver?

A receiver appointed by a lender under the Law of Property Act 1925 acts as the borrower’s agent (the background is in our guide to fixed charge receivers). HMRC’s Insolvency practitioner’s handbook, section 17.1, says such a receiver cannot register separately for VAT. The borrower keeps its own VAT registration and remains responsible for all taxable supplies, and expenditure incurred by the borrower or the receiver is accounted for on the borrower’s VAT Return.

The same applies to rents. Notice 742 paragraph 9.3 says that where a lender or receiver collects rents from tenants and uses them to reduce the debt or pay interest, the borrower is making the supply to the tenant, and if it is standard rated the lender or receiver should account for the VAT on the borrower’s behalf. Section 17.3 of the handbook limits the receiver’s duty to the net amount that would be due from the borrower. The receiver may reduce that amount by any VAT credit the borrower is entitled to claim in connection with the supply, but it cannot make its own input tax claim or obtain a repayment; any repayment has to be claimed by the borrower on its own return.

Is the sale standard rated or exempt?

Section 31 of the VAT Act 1994 and Group 1 of Schedule 9 make most supplies of interests in property exempt. Two exceptions decide most receiver sales of commercial buildings:

• New commercial buildings. Notice 742 paragraph 3.2 says a freehold sale of a new or partly completed commercial building is standard rated unless it is a transfer of a going concern. A building is new for 3 years from completion, which is the earlier of the certificate of practical completion and full occupation.
• Opted property. Section 17.2 of the handbook says supplies of opted property will normally be standard rated. The relevant option is the borrower’s, because the borrower is the one treated as making the supply.

An option to tax has no effect on some supplies, including buildings designed or adapted as dwellings (Notice 742A section 3), so a flat above an opted shop can still be exempt. Where the sale is standard rated, VAT is charged at the standard rate of 20%. The general rules are in our guides to VAT on commercial property and the option to tax.

How does a receiver find out whether the borrower opted to tax?

This is the practical problem. The borrower may be insolvent, uncooperative or untraceable, and since March 2024 HMRC no longer sends an acknowledgement when an option is notified (Notice 742A updates), so there may be no letter on file. HMRC’s guidance at VATLP22450 recognises that a lender or receiver may be unable to establish whether a property is opted. Where HMRC holds a definite record of an option it can disclose it to the lender or receiver in writing. Where it finds no record, it will say so in writing but adds that this does not necessarily mean no option was made. Section 17.2 of the handbook asks the receiver to write to HMRC with a valid VAT registration number to request disclosure.

A receiver should therefore look for other evidence too: the borrower’s VAT records, whether VAT has been charged on rents, and any copy of form VAT1614A. If a receiver wants to opt the building itself, care is needed. Notice 742A paragraph 7.6 says a notification must be signed by an authorised person with the legal capacity to make the decision, and its table of authorised signatories does not list receivers. HMRC’s guidance at VATLP22380 also stresses that an option binds a business only where it actually decided to opt, citing a case where a solicitor notified an option without authority. The steps for a valid notification are in our guide to notifying an option to tax.

How is the VAT paid to HMRC?

Regulation 27 of the VAT Regulations 1995 governs sales deemed to be made by the debtor under paragraph 7. Within 21 days of the sale, the person selling (or the auctioneer, on a sale by auction), whether or not registered for VAT, must:

1. send HMRC a statement giving their own name, address and any VAT number; the name, address and VAT number of the person whose property was sold; the date of sale; a description of what was sold; and the price and VAT at each rate;
2. pay the VAT due; and
3. send a copy of the statement to the borrower.

The statement is form VAT 833, which can be completed online or printed and posted. Section 17.3 of the handbook says the borrower’s VAT registration number should be used on the sales invoice and quoted on the form. Both the seller and the borrower must leave the VAT on that sale out of their own VAT Returns, so it is not counted twice.

Formal insolvency is handled differently. Section 7.8 of the handbook says VAT on assets remaining at the date of insolvency goes on the post appointment VAT Returns, and section 7.9 says form VAT 833 must not be used for output tax after a registration has been cancelled, while listing management of property by Law of Property Act receivers as one of the processes for which it may still be completed.

Can the sale be a transfer of a going concern?

Yes, where a let building is sold with its tenants. Notice 700/9 says a business can be a going concern even if it is unprofitable or under the control of a liquidator or administrative receiver. For an opted or new building, the buyer must opt to tax and notify HMRC by the relevant date, which is the time of supply, and tell the seller that its option will not be disapplied. If those steps are missed, VAT is due in the normal way. See our guide to TOGC for property letting businesses.

What does this look like in practice?

Illustration only. A company opted to tax its office building some years ago and then defaulted on its loan. The lender appoints a receiver, who sells the building with vacant possession for £600,000. Because the borrower opted, the sale is standard rated, so the buyer pays £600,000 plus VAT of £120,000. Within 21 days the receiver completes form VAT 833 quoting the borrower’s VAT number, pays the £120,000 to HMRC and sends the borrower a copy. The borrower leaves the sale off its own return. VAT on the agents’ and solicitors’ fees for the sale is input tax of the borrower, recoverable only through the borrower’s VAT Return, because the receiver cannot claim it separately.

What mistakes come up most often?

• Treating a sale as exempt because HMRC found no record of an option. A nil response is not proof that no option exists.
• A receiver trying to register for VAT in its own name or to reclaim input tax directly.
• Missing the 21 day deadline for the statement and payment.
• Charging VAT on residential parts of a mixed building, which the option to tax does not reach.
• Forgetting that a building completed less than 3 years ago is standard rated on a freehold sale whether or not anyone opted.

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Related Accountapedia entries

• Accounting for a debt released by a lender or supplier
• Opting to Tax Property for VAT
• Property Income Allowance Explained
• VAT on commercial property: sales and lettings
• Property business losses in a company

Sources

• legislation.gov.uk: Act 1994 c. 23, schedule 4
• legislation.gov.uk: Act 1994 c. 23, schedule 4
• GOV.UK: Vat on land and property notice 742
• GOV.UK: 17 law of property act
• GOV.UK: Opting to tax land and buildings notice 742a
• GOV.UK: Vat rates
• GOV.UK: Manual page VATLP22450
• GOV.UK: Manual page VATLP22380
• legislation.gov.uk: SI 1995/2518, regulation 27
• GOV.UK: Vat statement of vat on goods sold in satisfaction of a debt vat833

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.