Option to tax—disapplication under anti-avoidance rules
Produced in partnership with Martin Scammell
Option to tax—disapplication under anti-avoidance rules

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

  • Option to tax—disapplication under anti-avoidance rules
  • Why does this matter?
  • Why do the rules exist?
  • When do the rules need to be considered?
  • Conditions for the option to be disapplied
  • What is a development financier?
  • Examples
  • Relevance to a transfer of a going concern (TOGC)
  • Relevance in VAT planning

This Practice Note is about the disapplication of the VAT option to tax (see Practice Note: The option to tax land and buildings) under anti-avoidance rules.

Why does this matter?

If the tests described in this Practice Note are met, the option to tax is automatically disapplied. The parties do not have a choice in the matter, nor does there need to be any avoidance motive. The option is sometimes disapplied in normal commercial transactions, so that considerable care may be needed.

The effect of the rules is to override an option to tax and make a sale or lease exempt, so that the seller or landlord cannot recover VAT related to the property. The impact can be particularly serious for property developers.

The rules are also relevant in the context of a transfer of a going concern (TOGC) (see Practice Note: Transfers of a going concern involving land and buildings), and they are sometimes triggered deliberately so that a transaction can be exempt from VAT.

The effect of disapplication is to suspend the option, not to invalidate it. Even if the option is disapplied in relation to one transaction, it might still apply to future transactions.

Why do the rules exist?

The rules block various VAT planning opportunities. For example, it was originally possible for someone commissioning a building for their