20-year rule—revoking an option to tax
The option to tax regulations were introduced on 1 August 1989, so this means that it became possible for some options to be revoked for the first time after 1 August 2009 under the 20-year rule.
A taxpayer will be able to automatically revoke his option in most cases (no HMRC permission needed – completion of Form VAT 1614J).
However, in completing VAT 1614J, a taxpayer needs to pass three anti-avoidance tests shown as Conditions 3 to 5 on the form. If any of the conditions are not met, then HMRC permission is needed before the election can be revoked, ie it is not automatic. The aim of the anti-avoidance tests is to prevent a business gaining an unfair tax advantage.
An important point for advisers to appreciate is that all of the tests at Conditions 3 to 5 must be met in order to revoke an option without HMRC permission, as well as Condition 2 regarding the 20-year time limit. Example 5 illustrates a situation where all of the conditions are met. The four conditions are:
• 20-year time period (Condition 2) – the taxpayer must have held a relevant interest in the building or land at the time when the option first took effect and more than 20 years have now passed
Note – if this condition is not met, then the other issues are irrelevant. The option to tax election cannot be revoked.
• capital goods