Property VAT · 2026
When VAT applies to property companies: exempt residential lets, commercial property and the option to tax, new builds, conversions, short lets and partial exemption.
Short answer
Residential letting is generally VAT-exempt, so most buy-to-let and HMO companies do not register. VAT can apply to commercial property where an option to tax is made, to short-stay accommodation, to property management services, and to development: new homes are usually zero-rated and many conversions are 5%.
Written and reviewed by Waqas Sagar Member of ICAEW, Fellow of ACCA, Fellow of AAT, a double graduate and entrepreneur at heart, helping startups grow and serving thousands of businesses nationwide with an excellent team. Published by LimitedCompany.Accountants, 12 London Road, Morden, London SM4 5BQ. Reviewed 21 October 2026 against 2026/27 UK rates and current Companies House and HMRC guidance.
Content updated 21 October 2026. Official references are listed below.
VAT in property depends on what you supply. The same company can make exempt, zero-rated and standard-rated supplies, which affects whether it must register and how much input VAT it can recover.
Residential letting exempt
Commercial property and the option to tax
Zero-rated new dwellings
5% conversions and renovations
Partial exemption
Long-term residential letting is exempt. Exempt income does not count towards the £90,000 registration threshold, and VAT on related costs is generally not recoverable. Most buy-to-let and HMO companies are therefore not VAT-registered.
Commercial lettings and sales are exempt by default, but an owner can opt to tax the property, making rents and sales standard-rated and allowing VAT recovery on costs. The option generally lasts 20 years and must be notified to HMRC. Sales of new commercial buildings within three years of completion are standard-rated.
Holiday and short-term accommodation is generally standard-rated, so serviced-accommodation operators count those takings towards the VAT threshold.
The first sale or long lease of a new dwelling by the developer is usually zero-rated, allowing VAT on construction costs to be recovered. Converting non-residential buildings into homes may be zero-rated on sale; certain conversions and renovations of dwellings empty for two years can benefit from 5% building work. Each project needs checking against Notice 708.
A company making both taxable and exempt supplies can recover VAT only on costs attributable to taxable supplies, with an apportionment for overheads. If exempt input VAT is within the de minimis limits, broadly £625 a month on average and half of total input VAT, it may be recoverable.
Rates, thresholds and dates reflect the UK position at the content update date, including measures announced for future tax years. Check current GOV.UK guidance, or ask us, before relying on them.
Primary references
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Frequently asked
Usually not. Residential rent is exempt and does not count towards the threshold.
Often if tenants are VAT-registered and you have significant VAT on costs. It can disadvantage exempt or non-registered tenants and buyers.
The first sale of a new dwelling by the developer is usually zero-rated.
Generally yes. Short-term accommodation is standard-rated and counts towards the threshold.
Often, if the eventual sale is zero-rated or taxable. Where the supply is exempt, recovery is restricted.
Keep bank statements, sales and platform reports, purchase invoices, payroll records, VAT workings, finance agreements and Companies House correspondence. We confirm the exact list at onboarding and identify gaps before a filing deadline becomes urgent.
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Yes. We request professional clearance, collect the prior records and authorities, check the next Companies House and HMRC deadlines, and give you one clear handover list. The process is normally completed remotely.
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