Overview of the option to tax

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Overview of the option to tax
  • What land and property is covered by the option to tax?
  • Notifying or applying for an option to tax
  • Who needs to opt to tax?
  • When is permission required to opt to tax?
  • What happens if changes are made to opted land and property?
  • Excluding properties from an option to tax
  • Who is bound by an option to tax?
  • Examples of the implications of opting to tax
  • Contracts

This document covers this in detail, together with the conditions; types of properties covered by this; notifying or applying; who needs to opt; what happens if changes are made to the opted property; excluding properties from an option to tax; who is bound; and drafting contracts.


This guidance note provides an overview of the option to tax or election to waive exemption in relation to supply of certain land and property. It should be read in conjunction with the following guidance notes:

VATA 1994, Sch 10; VAT Notice 742A 2006/112/EC , Article 137; VATLP22000
  • Disapplication of the option to tax – anti avoidance provisions
  • Revoking an option to tax
  • Overview of VAT and property issues
  • Property transactions where the business cannot opt to tax
  • Option to tax and VAT group registrations
  • Recovering input tax on land and property transactions

If the land and property transaction will be exempt from VAT under VATA 1994, Sch 10, Group 1, the supplier may not be able to recover any VAT incurred on any costs associated with the property. However, providing certain conditions are satisfied, it is possible for suppliers to 'opt to tax' supplies of land and property. This means that VAT will be charged on all property transactions that would normally be exempt from VAT. This can be beneficial for the supplier as it will enable them to recover all of the VAT incurred in respect of the property.

The ability to recover any VAT charged can be especially important when the supplier has incurred, or will incur, significant amounts of VAT on:

De Voil Indirect Tax Service V7.383 (subscription sensitive)
  • any refurbishment or improvement works to the property
  • the purchase / lease of the property
  • costs associated with the sale of the property

However, a supplier should consider the VAT status of the lessee / purchaser who is likely to lease / purchase the property before

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