Q&As

A buyer is contracting to buy a commercial property that has been opted to tax. The contract provides for the seller to revoke the option between exchange and completion, but if this is not accepted by HMRC, the buyer is to pay VAT on the purchase price. What risks are there for the buyer and what provisions should we add to the contract in this situation?

read titleRead full title
Published on LexisPSL on 17/10/2018

The following Tax Q&A provides comprehensive and up to date legal information covering:

  • A buyer is contracting to buy a commercial property that has been opted to tax. The contract provides for the seller to revoke the option between exchange and completion, but if this is not accepted by HMRC, the buyer is to pay VAT on the purchase price. What risks are there for the buyer and what provisions should we add to the contract in this situation?

Once an option to tax land and buildings has been made, it can only be revoked in certain circumstances.

One of these circumstances is where an option has had effect for more than 20 years. Under paragraph 25 of Schedule 10 to the Value Added Tax Act 1994, a taxpayer can revoke an option to tax that has had effect for more than 20 years provided the taxpayer either meets certain conditions or gets prior permission from HMRC.

The conditions are set out in HMRC VAT Notice 742A, section 8.3 and have force of law. The taxpayer must meet Condition 1 or all of Conditions 2–5.

Condition 1 would not apply here as this condition relates to the taxpayer (seller) not having a relevant interest in the land.

In brief, Conditions 2–5 are:

  1. the taxpayer or a relevant associate has held an interest in the land for more than 20 years from the date of the option

  2. the land is not a capital good scheme item

  3. the taxpayer or a relevant associate has not made a supply of the land/ building for less than mark

Related documents:

Popular documents