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TaxationWeb by Steve Allen

Steve Allen, Director of VAT Solutions (UK) Ltd answers some of the most commonly asked questions about the option to tax land and property.Land and property is one of the most difficult areas of VAT and causes a lot of confusion among advisers and businesses alike. The issue of an ‘option to tax’ on property causes more confusion than most other areas.

In our experience, there are three questions that we get asked the most.

1. QUESTION - Once an option to tax has been exercised on a property, is that building always opted?

ANSWER - No. The option to tax does not apply to the building, but to the person’s interest in that building. For example, the freehold owner leases a building to a tenant, and exercises the option to tax. He will then charge VAT on the rents. The tenant then sub leases part of the building. He decides not to opt to tax so the rents to the sub tenant are exempt from VAT.

In another example, the owner of a building opts to tax it and sells the freehold. The purchaser can decide whether or not he wants to opt to tax, but is not obliged to follow the example of the previous owner.

2. QUESTION - Can I opt to tax residential property?

ANSWER – No. You can never opt to tax a residential property. So, if you own a shop with a flat above it, you can opt to tax the property, but it will only apply to the commercial part. No VAT would be charged on the rent or sale of the flat. In the same way you cannot opt to tax a residential home, such as a nursing home.

If you have opted to tax a building or land and sell it somebody who intents to convert into residential property, or construct new residential property on the site, your option to tax will be ‘disapplied’ unless the purchaser agrees to let you charge him VAT.

3. QUESTION – If I opt to tax one property, do I have to opt to tax all the properties I own?

ANSWER – No. The option to tax can be exercised on a building by building basis, and a separate option to tax will have to made for each property. So, you could own fifty commercial properties, and only decide to opt to tax two of them, the other forty-eight would still be exempt from VAT.

October 2004

Steve Allen
Director, VAT Solutions (UK) Ltd
Email: steveallen@vatsolutions-uk.com

VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc