V3.463 Tax incurred before an option to tax

Part V3 Supplies, acquisitions and imports

V3.463 Tax incurred before an option to tax

Partial exemption—attribution in particular circumstances

V3.463 Tax incurred before an option to tax

Input tax may become attributable to a taxable supply, rather than to an exempt supply, after the exercise of an option to tax. For the making of an option to tax, see V4.114–V4.116.

The effect of an option to tax is that the grant or assignment of an interest, right or licence exempted from tax under VATA 1994, Sch 9, Group 1 is normally charged to tax at the standard rate1. To the extent that land or buildings are to be sold, let or licensed, it follows that input tax on the purchase or importation of related goods and services will normally be used exclusively in making taxable supplies, so the input tax concerned is wholly allowable under the attribution provisions described in V3.461–V3.461C and V3.462–V3.462A.

The rules covering input tax recovery described in this paragraph relate to options taking effect on or after 1 January 1992.

Unless the conditions for automatic permission2 apply, the previous written permission of HMRC is required for an option where the person making the option has made, makes,

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