Property types and scenarios

VAT on Buying an Office

PropertyVAT Team · Updated 21 October 2026 · 3 min read

There is no special VAT regime for offices. What makes them distinctive is behavioural: offices get refurbished more often than almost any other commercial asset, and refurbishment is what drives owners to opt to tax.

Why the odds are high

An owner who spends £800,000 refurbishing a building faces £160,000 of VAT on that spend. Without an option to tax, none of it is recoverable against exempt rental income. With one, it is.

So the decision is close to automatic for anyone investing in the building — and offices get that investment on a cycle, between lettings, at rent review, on repositioning.

The practical consequence for a buyer: assume an office is opted until the contract tells you otherwise. It is the wrong default on a tired industrial unit and the right one on a refurbished city-centre floor.

The Capital Goods Scheme angle

This is where offices genuinely differ from most commercial purchases.

Refurbishment expenditure of £250,000 or more excluding VAT can bring a property within the Capital Goods Scheme, under which recovery is revisited across ten intervals as use changes.

Because offices are refurbished repeatedly, you are more likely than elsewhere to be buying a building that is already mid-adjustment.

Questions worth asking:

• When was the building last refurbished, and what did the works cost?
• Is the property within a Capital Goods Scheme adjustment period?
• How many intervals remain?
• What was the recovery position in the first interval?

If you then change the use — letting to an exempt tenant, converting part to residential, revoking or disapplying an option — adjustments can follow, years later, on a decision taken by someone who never saw the original records.

Fit-out: Category A and Category B

Office transactions involve two distinct layers of fit-out, and they sit with different parties.

Category A is the landlord's base specification — raised floors, suspended ceilings, basic services, finished to a lettable standard. This is normally the landlord's expenditure, and recovery follows the landlord's position.

Category B is the tenant's fit-out — partitioning, meeting rooms, branding, specialist installations. Normally the tenant's expenditure, with recovery following the tenant's position.

Where the landlord contributes to Category B works, the treatment depends on whose benefit the works are for and whether the landlord is buying something. That is the inducement question, and it should be settled in the agreement for lease rather than assumed.

The tenant mix question

Most office occupiers are fully taxable businesses that recover VAT on rent without difficulty, so opting to tax is usually neutral for them.

The exceptions concentrate in sectors that take a lot of office space:

• Insurance and some financial services
• Healthcare administration
• Charities and some membership bodies
• Education providers

For these occupiers an opted building costs 20% more to occupy. In a soft letting market that is a real competitive disadvantage against an unopted building nearby — which is worth weighing before you opt, given the option runs for 20 years.

Dilapidations

Offices generate more dilapidations activity than most asset classes, because fit-out is extensive and reinstatement obligations are common.

Dilapidations payments are frequently treated as compensation outside the scope of VAT, but the treatment depends on the facts and on what the payment is actually for. Where a payment is in substance consideration for the landlord agreeing to something, the analysis can differ.

What to establish

1. Has the seller opted to tax? Get the notification and acknowledgement.
2. When was the building constructed? The three-year rule applies regardless of any option.
3. When was it last refurbished, and at what cost?
4. Is it within a Capital Goods Scheme adjustment period, and how many intervals remain?
5. What is the tenant mix, and can those tenants recover VAT on rent?
6. Is TOGC available if the building is let?
7. Is your buying entity VAT registered?

Questions three and four are the ones you would not ask on a warehouse. On an office they are where the history hides.

This guide is general information, not tax advice. The Capital Goods Scheme and fit-out treatment are technical — take specialist VAT advice.