Overview of the option to tax

Produced by Tolley

The following Value Added Tax guidance note Produced 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?
  • Land that is opted to tax
  • Buildings that are opted to tax
  • Properties opted before 1 March 1995
  • Notifying or applying for an option to tax
  • Notifying or applying for an option to tax
  • Belated notification of an option to tax
  • Who needs to opt to tax?
  • Beneficial owners
  • More...

Overview of theoption to tax

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

  1. Disapplication of theoption to tax ― anti avoidance provisions

  2. Revoking an option to tax

  3. Overview of VAT and property issues

  4. Property transactions where thebusiness cannot opt to tax

  5. Option to tax and VAT group registrations

  6. Recovering input tax on land and property transactions

VATA 1994, Sch 9; VAT Notice 742A; 2006/112/EC, Article 137; VATLP22000

If theland and property transaction will be exempt from VAT under VATA 1994, Sch 9, Group 1, thesupplier may not be able to recover any VAT incurred on any costs associated with theproperty. 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 thesupplier as it will enable them to recover all of theVAT incurred in respect of theproperty.

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

  1. any refurbishment or improvement works to theproperty

  2. the purchase / lease of theproperty

  3. costs associated with thesale of theproperty

De Voil Indirect Tax Service V7.383

However, a supplier should consider theVAT status of thelessee / purchaser who is likely to lease / purchase theproperty before deciding whether it is appropriate to opt to tax.

For example, a supplier may not want to lease / purchase a property with an option to tax in place, as they cannot recover theVAT charged if theproperty is likely to appeal to:

  1. an insurance company

  2. a financial services company

  3. a charity

  4. a school / university


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