Commentary

V4.115B Land subject to an option to tax—exclusions from option (anti-avoidance)

Part V4 Exemption, zero-rating and reduced rates

V4.115B Land subject to an option to tax—exclusions from option (anti-avoidance)

V4.115B Land subject to an option to tax—exclusions from option (anti-avoidance)

The anti-avoidance provisions are complex, and a detailed explanation is set out below. It may be helpful to bear in mind the purpose behind the legislation, ie to prevent a partly (or fully) exempt business from mitigating a VAT cost by creating 'artificial' taxable supplies which spread irrecoverable VAT over a number of years. Thus, in broad terms, the effect of the provisions is to prevent the option applying where a building which is subject to the Capital Goods Scheme (see V3.470) is to be occupied by the owner, his financier, or a person connected1 with either, for purposes that are not fully taxable. In the words of HMRC2:

If, at the time of the grant of land or buildings:

  1.  

    •     The property is, or is expected to become, a capital item for the purposes of the Capital Goods Scheme, either for the grantor, a person to whom the property is transferred or a person treated as the grantor, see paragraph 13.3.3.

  2.  

    •     It's the intention or expectation of the grantor or the person treated as the grantor, see paragraph 13.3.3, or a person responsible for financing the grantor's acquisition or development, that the building will be occupied by them or a person connected3 with them.

  3.  

    •     The person occupying the property will be doing so other than wholly or substantially wholly for eligible purposes, see paragraph 13.9.

Then the option to tax will not have effect in respect

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