Option to tax—disapplication for residential and other property
Produced in partnership with Martin Scammell
Option to tax—disapplication for residential and other property

The following Tax guidance note Produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:

  • Option to tax—disapplication for residential and other property
  • Why does this matter?
  • Why do the rules exist?
  • Cases where the option is disapplied
  • Existing dwellings
  • Dwellings—conversions and other cases
  • Buildings for a relevant residential purpose (RRP)
  • Buildings for a relevant charitable purpose (RCP)
  • Development sites for housing associations
  • Development sites for individuals
  • more

This Practice Note is about the disapplication of the VAT option to tax (see Practice Note: The option to tax land and buildings) for residential and some other property. It does not cover disapplication under the anti-avoidance rules (see Practice Note: Option to tax—disapplication under anti-avoidance rules).

Why does this matter?

If the rules apply, they override an option to tax and make a sale or lease exempt. In most cases where they are relevant, the buyer or tenant would not be able to recover the VAT, so this can be an important benefit.

But the rules also mean that the seller or landlord cannot recover related VAT, and might incur a cost under the capital goods scheme (CGS) (see Practice Note: VAT—capital goods scheme). This needs to be factored in to any transaction.

In many cases, the parties have a choice as to whether the option is disapplied. It is best if this is the subject of negotiation, and there will sometimes be alternative ways of avoiding a VAT cost.

The buyer or tenant may need to issue a certificate in order for the option to be disapplied, and there are timing requirements about this.

Why do the rules exist?

The UK does not seek to apply VAT to sales or lettings of housing. But the option to tax applies to