Guidance

Opting to tax land and buildings (VAT Notice 742A)

What happens when you opt to tax (charge VAT on) land and buildings, when you need permission and when to notify HMRC about your decision.

• From: HM Revenue & Customs
• Published: 16 April 2014
• Last updated: 8 March 2024 — See all updates

To help businesses during coronavirus (COVID-19) we made temporary changes to the time limit and how you notify an option to tax.

The temporary change to the time limit for notifying an option ended on 31 July 2021. We will continue to accept electronic signatures subject to certain conditions.

Read Changes to notifying an option to tax land and buildings during coronavirus (COVID-19).

1. Overview

Some paragraphs in this notice have text which has force of law under Schedule 10 of the VAT Act 1994.

Sections A to L also have text which has force of law.

1.1 What this notice is about

This notice explains the effect of an option to tax and will help you to decide whether to exercise that option. It will tell you whether you need permission from HMRC before you can opt to tax, and how to notify HMRC of your decision. Prior to 1 June 2008, the option to tax was also referred to as the election to waive exemption. From 1 June 2008, it’s only referred to as the option to tax.

You should also read Land and property (VAT Notice 742) which gives basic information about supplies of land.

This notice assumes that you have a working knowledge of basic VAT principles as outlined in VAT guide (VAT Notice 700).

1.2 The effect of an option to tax

Supplies of land and buildings, such as freehold sales, leasing or renting, are normally exempt from VAT. This means that no VAT is payable, but the person making the supply cannot normally recover any of the VAT incurred on their own expenses.

But you can opt to tax land. For the purposes of VAT, the term ‘land’ includes any buildings or structures permanently affixed to it. You do not need to own the land to opt to tax. Once you have opted to tax all the supplies you make of your interest in the land or buildings will normally be standard-rated, and you will normally be able to recover any VAT you incur in making those supplies.

1.3 Who should read this notice

You should read this notice if you make, or intend to make supplies of any interest in land, buildings or civil engineering works.

1.4 Note about terminology used in this notice

For the purpose of this notice:

• ‘property’ means land (including buildings and civil engineering works)
• an ‘interest in’ property means any interest in, right over or licence to occupy property

1.5 The law covered in this notice

The area of VAT law which specifies the supplies of land and buildings that are exempt from VAT is Group 1 of Schedule 9 to the Value Added Tax Act 1994. The law detailing the option to tax is found in Schedule 10 to the Value Added Tax Act 1994.

Paragraphs 2.7.5, 3.4.2, 3.6.2, 5.6, 6.3.6, 6.3.8, 8.1.4, 8.1.6, 8.3.4, 8.3.7 and 14.9 have text which has force of law under Schedule 10 of the VAT Act 1994.

Sections A-L in paragraphs 2.7.2, 3.4.3, 3.6.3, 5.2, 6.3.5, 8.1.2, 8.3.3, 13.8.6, 13.9.1, 14.8.3 and 14.9 and 14.12 also have text which has force of law.

2. The scope of an option to tax

2.1 What you’re opting to tax

You are opting to tax land. For the purposes of VAT, the term ‘land’ includes buildings. When you opt to tax, you can specify an area of land or a ‘building’. Commonly, you will specify a ‘building’ because that is the prominent feature of the land. If you specify:

• a building, the option to tax will continue to apply to the land on which the building stood if the building is demolished and to any future buildings constructed on the land
• land, the option will apply to any buildings on the land and future buildings constructed on the land

In both circumstances, you can specifically exclude new buildings from the effect of an option to tax if you wish to (read paragraph 2.7). Further details about the scope of an option to tax are in paragraph 2.4.

2.2 What constitutes a ‘building’

Usually it will be clear what constitutes a building, for instance an office block or a factory. But in some instances the law treats more than one building as being a single building for the purpose of the option to tax. These are:

• buildings that are linked, or if not yet built are planned to be linked — read paragraph 2.3 for more information on links
• a complex consisting of a number of units grouped around a fully enclosed concourse, such as a shopping mall

2.3 What a link is

A link is an internal access or a covered walkway between buildings the purpose of which is to allow movement of goods and people.

It does not include a:

• car park, either above or below ground
• public thoroughfare
• statutory requirement, such as a fire escape

2.4 What’s covered by the option to tax

HMRC uses a number of basic principles to determine how far your option to tax extends over the land and associated buildings.

Option	Principle
Land	Your option to tax covers all the land, and any buildings or civil engineering works which are part of the land. Your option to tax will cover the discrete area of land that you specify, and will not affect any adjoining land. If you construct a new building on land that you have opted, the building will be covered by the option to tax unless you notify us that you wish to exclude the building from the effect of the option (paragraph 2.7 explains how to do this).
Buildings	Your option to tax will cover the whole of the building, and the land under the building and within its curtilage (the land immediately around the building including, for example, forecourts and yards). If your interest in the building is restricted to one floor, your option to tax will still cover the remaining floors of the building. If the building stands in a large area of land, the extent of the curtilage (or how far the option to tax extends over the land) depends on how far the services of the building can be used. For example, a racecourse grandstand may provide electricity and shelter for stalls, or other facilities, within its peripheral area. An option to tax on the grandstand would extend over the whole area of land that uses the benefits. Equally, an option would normally extend to an area adjacent to a building which is put to a use that is ancillary to the use of the building, such as car parking. If the building is demolished or destroyed, your option to tax will still apply to the land on which the building stood and to any future buildings that are constructed on the land. But if you opted to tax before 1 June 2008 and it’s clear from your notification that the option was made on the building only, for example, you specified in your notification ‘Building at 1 High Street’, you can, if you wish, treat the option as revoked once the building is demolished. You do not need to notify us before revoking but you should retain evidence in case this is requested in the future.

2.5 Options exercised before 1 March 1995

Before 1 March 1995, slightly different rules applied to determine the scope of an option to tax. These rules will still apply to you if, before 1 March 1995, you opted to tax:

• agricultural land
• units within a parade, precinct or complex (such as a row of shops or a retail precinct)

If you have any queries about the scope of an option to tax exercised before 1 March 1995 in relation to agricultural land or a parade, precinct or complex, you should contact the Option to Tax Unit.

2.6 If you make changes to a building after you’ve opted to tax

If you make changes to a building after you have opted to tax you will need to consider whether your option to tax covers those changes. This table sets out the basic principles for the most common changes made:

Change	Principle
Extensions	If you have opted to tax a building and you extend it at a later date, upwards, downwards or sideways, your option to tax will apply to the whole of the extended building.
Linked buildings	If prior to their completion buildings are linked by an internal access or covered walkway (read paragraph 2.3 for more information on what is meant by a ‘link’) they are treated as a single building and an option to tax will apply to both parts. If a link is created after both buildings are completed, the option to tax will not flow through with the link.
Forming a complex	If you have a group of units that have been treated as separate buildings for the option to tax and you later decide to enclose them so as to form a complex which meets the description in paragraph 2.2, the option to tax will not spread to the un-opted units.

2.7 Excluding a new building from the effect of an option to tax

2.7.1 Circumstances where you can exclude a new building from the effect of an option

If you construct a new building on opted land (and that building is not within the curtilage of an existing building — for the meaning of ‘curtilage’, read paragraph 2.4), you may exclude the new building (and land within its curtilage) from the effect of the option to tax by notifying us of the exclusion.

If you decide to do this, the new building will be permanently excluded from the effect of your existing option to tax. But you may make a fresh option to tax in the future, subject to obtaining permission from us if appropriate — read section 5.

If you choose to exclude a new building from the effect of an option to tax this may affect your entitlement to recover input tax on your costs. Read section 9 for further information about input tax.

2.7.2 The earliest time that you can exclude a building

The earliest time that you can exclude a building from the effect of an option to tax is when construction begins. The time when construction of a building begins, for this purpose, is determined by section A.

Section A

This section has force of law.

The time at which the construction of a new building is taken to begin for the purposes of excluding it from the effect of an option to tax (for the purposes of paragraph 27(7) of Schedule 10 to the VAT Act 1994).

Construction of a building begins when it progresses above the level of the building’s foundations.

Usually, a building will have progressed above the level of the foundations at the point at which the first brick is laid.

2.7.3 When exclusion has effect

Exclusion has effect from the earliest of the following times, when:

• a grant of an interest in the building is first made
• the new building, or any part of it, is first used
• the new building is completed

2.7.4 When to notify the exclusion

An exclusion is only valid if it is notified to HMRC. Notification must be made after construction has begun (read paragraph 2.7.2) and, normally, within 30 days of the date the exclusion has effect (read paragraph 2.7.3). A longer period may be allowed in exceptional circumstances.

2.7.5 How to notify HMRC

This section has force of law.

Notification of the exclusion of a new building from the effect of an option to tax (for the purpose of paragraph 27 of Schedule 10 to the VAT Act 1994) must be made on form VAT1614F and must contain the information requested on that form.

3. Supplies not affected by an option to tax

3.1 Supplies that are not affected by an option to tax

There are some supplies where, even if you have opted to tax, the option will not apply. If you make any of the supplies described in this section your supplies will remain exempt from VAT even if you have opted to tax. This may have an impact on how much input tax you can claim or make it necessary for you to repay input tax that you have previously claimed.

This table summarises supplies on which the option to tax will have no effect and indicates where certificates are required:

Summary of supplies not affected by the option to tax
Type of supply	Paragraph number	Evidence required
1. Buildings designed or adapted and intended for use as dwellings (for example, existing houses and flats).	Paragraph 3.2	No certificate required. Recommend: evidence of intended use retained.
2. Buildings designed or adapted and intended for use for relevant residential purpose.	Paragraph 3.3	No certificate required, but buyers or tenants must inform supplier of intended use. Recommend: written confirmation of intended use is retained by supplier.
3. Buildings for conversion into dwellings (for example, pub conversions).	Paragraph 3.4	Certificate (VAT1614D) must be given by recipient and retained by supplier.
4. Buildings intended to be used for a relevant charitable purpose.	Paragraph 3.5	No certificate required, but buyers or tenants must inform supplier of intended use. Recommend: written confirmation of intended use is retained by the supplier.
5. Land sold to a relevant housing association.	Paragraph 3.6	Certificate (VAT1614G) must be given by the recipient and retained by the supplier.
6. Land sold to an individual for construction of a dwelling.	Paragraph 3.7	No certificate required.
7. Pitches for residential caravans.	Paragraph 3.8	No certificate required.
8. Moorings for residential houseboats.	Paragraph 3.9	No certificate required.
9. Supplies affected by the anti-avoidance measures.	Paragraph 3.11 and section 13	No certificate required.

3.2 Buildings designed or adapted and intended for use as dwellings

Your option to tax will not apply if you supply a building, or part of a building, that is designed or adapted and intended for use as a dwelling (such as a house), or as a number of dwellings (such as a block of flats). You should keep evidence to show that the building is intended for use as a dwelling or number of dwellings. Buildings and construction (VAT Notice 708) explains what is meant by ‘designed as a dwelling’.

3.3 Buildings designed or adapted and intended for use for relevant residential purposes

Your option to tax will not apply if you supply a building, or part of a building that’s designed or adapted for use for a relevant residential purpose (such as a nursing home) and the buyer or tenant informs you before you make your supply that it is intended for use solely for a relevant residential purpose. Whilst there’s no requirement for a formal certificate to be given, you should get confirmation of the intended use in writing and retain it with your VAT records.

Where part of a building is intended for use solely for a relevant residential purpose and part is not, your option to tax will not apply to the part to be used for a relevant residential purpose, but only where the different functions are to be carried out in clearly defined areas. In these circumstances the value of your supply should be fairly apportioned between the exempt and taxable elements.

A building used for a relevant residential purpose is one in which some of the facilities, such as dining rooms and bathrooms, are shared, but this does not include use as a hospital, prison, hotel or similar establishment. Examples include residential homes for children, the elderly or disabled persons and student halls of residence. Read Buildings and construction (VAT Notice 708) for further details about the meaning of ‘solely for a relevant residential purpose’.

3.4 Buildings for conversion into dwellings

Your option to tax will not apply if you supply a building or part of a building that is not designed or adapted as a dwelling (or number of dwellings) or for a relevant residential purpose but you receive a certificate (VAT1614D) from the recipient of your supply (by the time described in paragraph 3.4.3 and paragraph 3.4.4) certifying that it is intended for use as a dwelling or number of dwellings or solely for a relevant residential purpose. This can apply where the building, or relevant part, is intended for such use without conversion work being undertaken, or after conversion.

3.4.1 Circumstances where you can issue a certificate

As a recipient of a supply, you can only certify that a building or part of a building is intended for use as a dwelling, or solely for a relevant residential purpose, if you’re a ‘relevant intermediary’ or you intend to:

• use the building (or part of the building) as a dwelling or solely for a relevant residential purpose
• convert the building (or part of the building) with a view to it being used as a dwelling or solely for a relevant residential purpose

You may not issue a certificate if the building is to be put to a non-qualifying use for a period before being used as a dwelling or solely for a relevant residential purpose. But minor or incidental non-qualifying use (such as storing goods for a short period) is disregarded.

For the meaning of ‘solely for a relevant residential purpose’, read paragraph 3.3 and Buildings and construction (VAT Notice 708).

3.4.2 Forms the certificate must take

This section has force of law.

Certification of intention to use a building (or part of a building) as a dwelling or dwellings or solely for a relevant residential purpose (for the purpose of paragraph 6 of Schedule 10 to the VAT Act 1994) must be made on form VAT1614D and must contain the information requested on that form.

3.4.3 When the certificate should be provided

As a supplier, if you receive a certificate by the time set out in section B, you must exempt your supply of the building or part of the building to which the certificate relates.

Section B

This section has force of law.

Time by which a certificate of intended use as a dwelling (or dwellings) or solely for a relevant residential purpose must be given to the seller making the supply (for the purpose of paragraph 6(2) of Schedule 10 to the Value Added Tax Act 1994).

The certificate must be given before the price for the grant to the recipient by the seller is legally fixed, for example by exchange of contracts, letters or missives, or the signing of heads of agreement.

3.4.4 Accepting a certificate after the time specified in section B

If you receive a certificate after the time the price for the grant has been legally fixed, you do not have to accept the certificate, but may do so at your discretion, but only in respect of supplies that arise after the certificate is given. For example, if you have granted a lease for periodic rental payments, you may only exempt the rental supplies that take place after you receive a certificate.

If you sell the freehold, you may only exempt the supply if it takes place after you receive a certificate (in the case of freehold sales, the supply would typically take place at completion). It should be noted that it is the fixing of the price of the grant that establishes the time by which the certificate should be given. Care should be taken, particularly in relation to the signing of the heads of agreement, as this will not in all cases legally fix the price.

3.4.5 A ‘relevant intermediary’

You’re a ‘relevant intermediary’ if you’re buying an interest in a building or part of a building and you both:

• intend to dispose of the whole of the interest you are buying to another
• have a certificate from the prospective buyer, certifying that they either:
  • intend to convert the building (or part of it) with a view to it being used as a dwelling or solely for a relevant residential purpose
  • are a ‘relevant intermediary’

If you’re a ‘relevant intermediary’, the certificate you receive from your prospective buyer serves 2 purposes:

1. It allows you to issue a certificate to disapply your supplier’s option to tax (so that your purchase of the building, or relevant part, is exempt).
2. It disapplies your own option to tax (if you have made one) when you come to supply the building on to your buyer (so that your sale of the building, or relevant part, is exempt).

3.4.6 If only part of building is intended for use as a dwelling or for a relevant residential purpose

If only part of the building is intended for use as a dwelling or solely for a relevant residential purpose, the certificate should make it clear that this is the case and must contain a description of the qualifying part. The option to tax will apply to the part of the building that is not intended for the qualifying use and the value of the supply should be fairly apportioned between the exempt and taxable elements. You can find out more about apportionment in VAT guide (VAT Notice 700).

3.4.7 If you make more than one supply of an interest in the building

If you make more than one supply of a relevant interest in a building to the person who has given you the certificate (for example, because you have granted a lease for periodic rental payments), your option will be disapplied in relation to all subsequent supplies that arise from the same grant in the building or parts of the building covered by the certificate. You’re not obliged to accept a certificate if you receive it after the point at which the price for the grant is legally fixed. Read paragraph 3.4.4.

3.5 Buildings to be used solely for a relevant charitable purpose

Your option to tax will not apply if you supply a building, or part of a building, and the buyer or tenant informs you before you make your supply that they intend to use it solely for a relevant charitable purpose, other than as an office for general administration for example, head office functions of the charity. Whilst there’s no requirement for a formal certificate to be given, you should get confirmation of the intended use in writing and retain it with your VAT records.

Where part of a building is intended to be used solely for a relevant charitable purpose (other than as an office) and part is not, your option to tax will not apply to the part used for a relevant charitable purpose, provided that the different functions are carried out in clearly defined areas. In these circumstances the value of your supply should be fairly apportioned between the exempt and taxable elements.

Relevant charitable purpose means use by a charity for its non-business activities, or as a village hall or similarly to provide social or recreational facilities for a local community. Read How VAT affects charities (VAT Notice 701/1) for more information on non-business activities carried out by such bodies and Buildings and construction (VAT Notice 708) for further details about the meaning of ‘solely for a relevant charitable purpose’.

3.6 Land sold to a relevant housing association

Your option to tax will not apply if you supply land to a relevant housing association which provides you with a certificate (by the time described in paragraphs 3.6.3 and 3.6.4) certifying that, after any necessary demolition work, dwellings or relevant residential buildings will be constructed on the land. Where only part of the land is to be put to such use your option to tax will only be disapplied in relation to that part and you should therefore apportion the value of your supply between the exempt and taxable elements.

3.6.1 A relevant housing association

A relevant housing association is a:

• registered social landlord within the meaning of Part 1 of the Housing Act 1996
• registered social landlord within the meaning of the Housing (Scotland) Act 2001
• registered housing association within the meaning of Part 2 of the Housing (Northern Ireland) Order 1992
• private registered provider of social housing within the meaning given by section 80(3) of the Housing and Regeneration Act 2008

3.6.2 The form the certificate must take

This section has force of law.

Certification by a relevant housing association that land is to be used (after any necessary demolition work) for the construction of a building or buildings intended for use as a dwelling or number of dwellings or solely for a relevant residential purpose (for the purpose of paragraph 10 of Schedule 10 to the VAT Act 1994) must be made on form VAT1614G and must contain the information requested on that form.

3.6.3 When the certificate must be provided

As a supplier, if you receive a certificate by the time set out in section C, you must exempt your supply of the land to which the certificate relates.

Section C

This section has force of law.

Time by which a certificate of intended use of the land for constructing a dwelling, a number of dwellings, or solely for a relevant residential purpose must be given to the person making the supply (for the purpose of paragraph 10(2) of Schedule 10 to the Value Added Tax Act 1994).

The certificate must be given before the price for the grant to the recipient by the seller is legally fixed, for example exchange of contracts, by missives or letters, or the signing of heads of agreement.

3.6.4 Accepting a certificate after the time specified in section C

If you receive a certificate after the time the price for the grant has been legally fixed, you do not have to accept the certificate, but may do so at your discretion, but only in respect of supplies that arise after the certificate is given. For example, if you have granted a lease for periodic rental payments, you may only exempt the rental supplies that take place after you receive a certificate. If you sell the freehold, you may only exempt the supply if it takes place after you receive a certificate (in the case of freehold sales, the supply would typically take place at completion). You should also note that the signing of the heads of agreement will not always fix the price of the grant.

3.7 Land sold to an individual for construction of a dwelling

Your option to tax will not apply if you supply land to someone who intends to build a dwelling on it for their own use, and not in the course or furtherance of any business carried on by them (no certificate is required). This includes cases where the buyer intends to engage a builder to carry out the construction work on his behalf.

3.8 Pitches for residential caravans

Your option to tax will not apply if you supply a pitch for a permanent residential caravan (no certificate is required). A residential caravan is one where residence throughout the year is not prevented by covenant, planning consent or similar permission. Read Caravans and houseboats (VAT Notice 701/20) for further information about caravan pitches.

3.9 Moorings for residential houseboats

Your option to tax will not apply if you supply facilities for the mooring or berthing of a residential houseboat (no certificate is required). A houseboat is a floating decked structure that is designed or adapted for use solely as a place of permanent habitation. A houseboat does not have the means of, nor is capable of being readily adapted for, self-propulsion. A residential houseboat is one where residence throughout the year is not prevented by covenant, planning consent or similar permission.

3.10 Building to be used for both commercial and residential purposes

If you supply a building that is intended to be used partly for commercial and partly for residential purposes, such as a shop with a flat above, you should apportion your supply between the taxable and exempt (or zero-rated) elements. You may choose the method of apportionment but it must provide a fair and reasonable result. You can find out more about apportionment in VAT guide (VAT Notice 700).

A certificate might be required in order for you to treat the area intended for use as a dwelling as exempt. This depends on the status of that area of the building at the time of your supply if it is:

• already designed or adapted for use as a dwelling (for example, is already a flat), no certificate is required — read paragraph 3.2
• not already designed or adapted as a dwelling at that time (for example, is office space intended for conversion into a flat), certificate VAT1614D is required — read paragraph 3.4

3.11 Land or building affected by the anti-avoidance measures

The option to tax has no effect in relation to supplies resulting from a grant that falls within the anti-avoidance measures described within section 13.

4. How to opt to tax

4.1 What you need to do

There are 2 stages in opting to tax. The first stage is making the decision to opt. This may take place at a board meeting or similar, or less formally. However you reach your decision, you should keep a written record, showing clear details of the land or buildings you are opting to tax, and the date you made your decision.

If you have previously made exempt supplies of the land or building you may need our permission before you can opt to tax. Read section 5 to find out more.

The second stage is to notify us of your decision in writing. Paragraph 4.2 explains how you should do this.

4.2 Notification of an option to tax

4.2.1 When to notify

For your option to tax to be valid you, as authorised signatory (read paragraph 7.6), must normally make your notification within 30 days of your decision. You can ask HMRC to accept a notification made more than 30 days after your decision but we will not do so unless we are satisfied that you made your decision to opt at the relevant time. If you would like us to consider accepting a belated notification, you should enclose with your notification an explanation of your circumstances and any evidence that will help to show us that the decision was made at the relevant time.

We will normally accept a belated notification if you provide either:

• direct documentary evidence that the decision was made at the relevant time (for example, copies of correspondence with third parties referring to the option to tax)
• evidence that output tax has been charged and accounted for and input tax claimed in accordance with the option and a responsible person (such as a director) provides a written declaration that the decision to opt was made at the relevant time and that all relevant facts have been given

HMRC might accept a late notification in other circumstances. This will depend on the facts of your case.

4.2.2 What to include on your notification

Your notification must state clearly what land or buildings you are opting to tax, and the date from which the option has effect (read paragraph 4.3). You can use the notification form VAT1614A VAT: notification of an option to tax land and buildings.

If you’re opting to tax discrete areas of land you should send HMRC a map or plan clearly showing the opted land with your notification. If you’re opting a building that has a postal address give it in full including the postcode.

It would speed up our processing of your notification if you include your VAT registration number, or if your registration is pending, your VAT Registration Unit reference number.

It’s important that an appropriate person signs the notification and any accompanying list or schedule. Read section 7 and paragraph 7.6 for more information.

4.2.3 Where to send notification

If you’re already registered for VAT, you can email your option to tax notification to [email protected].

We recommend the subject line includes the:

• property address, including postcode
• effective date of the option to tax notification

You can also send your notification by post to the Option to Tax Unit. If you send your notification by post you will not receive an automated response. For more information, read paragraph 4.2.4.

If you are not registered for VAT, you can send your option to tax notification with your application to register for VAT. If you send your notification with your application to register for VAT, you will not receive an automated response. For more information, read paragraph 4.2.4.

To find out when and how you should register for VAT, read Who should register for VAT (VAT Notice 700/1).

4.2.4 Response to notifications

HMRC no longer issues option to tax acknowledgement letters.

If you send your notification by email to the Option to Tax Unit, you will receive an automated response, which will include the date HMRC received the notification. You should keep the automated response for your records.

Notifications which were not sent by email to the Option to Tax Unit will not get a response.

We will only contact you if we need more information.

The option to tax has legal effect even though we do not acknowledge receipt of your notification. You should begin charging VAT from the effective date of your option to tax (read paragraph 4.3).

4.2.5 If you’re notifying an option to tax in relation to land or buildings which are being transferred as a going concern

You should read section 11.

4.3 The effective date of your option to tax

Your option to tax will have effect from the date of your decision, or any later date that you have specified, as long as you notify HMRC in writing within the relevant time limits (read paragraph 4.2).

In no circumstances can an option to tax have effect from a date before you made your decision to opt.

4.4 Who’s bound by the option to tax

It’s for you to decide whether to opt to tax any land or buildings. If you do decide to opt to tax and are not a member of a VAT group, only the supplies you make of your interest in the land or building will be affected.

Your option to tax will not affect supplies made by anyone else. For example, if you are selling an opted building, your option does not transfer with the sale of that building. The buyer has the choice of whether to opt to tax or not. Similarly, if your tenant is sub-letting, they too have this same choice. For this reason, you should inform your tenant of your decision to opt at the earliest opportunity so that they can safeguard their right to recover input tax by opting to tax, should they wish to.

If you are, or become, a member of a VAT group, your option to tax may affect other members. As ‘relevant associates’ they may be bound by your option to tax (read paragraph 6.3).

4.5 If you make an option but at the time of making it, intend to revoke it under the ‘cooling off’ period

If, at the time of making an option you intend to revoke it during the 6 month ‘cooling off’ period (read paragraph 8.1), the option is treated as invalid from the outset.

5. Permission to opt to tax

5.1 Circumstances you’ll need permission from HMRC

If you have made, or intend to make, any exempt supplies of the land or buildings within the 10 years prior to the date you wish your option to take effect, you will need our written permission to opt to tax unless you meet one or more of the automatic permission conditions in section D.

5.2 Automatic permission

You do not need to obtain our written permission before you opt to tax provided you meet the conditions HMRC have set out in a notice. The conditions have changed from time to time. Condition 3 was amended from 1 May 2009. If you meet any of the 4 conditions set out in section D, you do not need written permission before you opt to tax:

Section D

These conditions have force of law.

Number	Condition
1.	It is a mixed-use development and the only exempt supplies have been in relation to the dwellings.
2.	You do not wish to recover any input tax in relation to the land or building incurred before your option to tax has effect, and the consideration for your exempt supplies has, up to the date when your option to tax is to take effect, been solely by way of rents or service charges and excludes any premiums or payments in respect of occupation after the date on which the option takes effect. Regular rental and service charge payments can be ignored for the purposes of this condition. Payments are considered regular where the intervals between them are no more than a year and where each represents a commercial or genuine arms-length value; and the only input tax relating to the land or building that you expect to recover after the option to tax takes effect will be on overheads, such as regular rental payments, service charges, repairs and maintenance costs. If you expect to claim input tax in relation to refurbishment or redevelopment of the building you will not meet this condition.
	Notes: When deciding whether you meet this condition you should disregard: VAT refundable to local authorities and other bodies under section 33(2)(b) of the Value Added Tax Act 1994 any input tax you can otherwise recover by virtue of the partial exemption de minimis rules (Regulation 106, VAT Regulations 1995); and any input tax you are entitled to recover on general business overheads not specifically related to the land or building, such as audit fees.
3.	You may opt to tax if you satisfy the first (outputs) requirement and (if applicable) the second (inputs) requirement. Definitions For the purposes of this condition: ‘property’ includes land, buildings and civil engineering works. the question of whether a person is ‘connected’ with another person is to be decided as it would be for the purposes of Part 1 of Schedule 10 to the Value Added Tax Act 1994 ‘permissible exempt supplies’ means the following exempt supplies arising from a grant in relation to the land: a. Supplies for which the consideration solely represents legal or valuation costs reimbursed under the agreement for the grant, or b. Supplies where: i. the consideration is provided by way of regular rents or service charges, and ii. the consideration relates to a period of occupation of the property and that period ends no later than 12 months from the date on which the option first takes effect; and iii. no opted supply, other than an opted supply relating solely to the same period of occupation as an exempt supply under point (ii) above, will be reduced in value as a result of the consideration payable for these exempt supplies. First (outputs) requirement You do not intend or expect that any supply which will be taxable as a result of you making your option to tax will either: 1. be made to a person connected with you, or 2. arise from an agreement under which you or another person has made or will make an exempt supply in respect of a right to occupy the property, where the right begins or continues after the date on which the option takes effect. Application of the first (outputs) requirement You may disregard paragraph 1 of the requirement if the person connected with you is expected to be entitled to credit or refund of at least 80% of the VAT chargeable on the supply. For the purposes of paragraph 2 of the requirement you may ignore permissible exempt supplies. Second (inputs) requirement 1. This requirement applies if you have been or expect to be entitled to credit for any part of the input tax incurred on your capital expenditure on the property as being wholly or partly attributable to supplies that are taxable supplies by virtue of your option to tax. 2. Where this requirement applies you must not intend or expect to use any part of the capital expenditure for either of the following purposes: a) making exempt supplies which do not confer a right to credit for input tax pursuant to section 26(2)(c) of the Value Added Tax Act 1994, or b) for private or non-business purposes, other than purposes giving rise to a right to a refund of VAT on the supplies under sections 33, 33A or 41(3) of the Value Added Tax Act 1994. Application of the second (inputs) requirement For the purposes of the requirement, your capital expenditure is your expenditure on goods or services used in connection with the acquisition of, building works on, construction works on or the fitting out of, the property. Capital expenditure does not include expenditure on routine repairs and maintenance. For the purposes of the requirement, ‘entitled to credit’ includes a deduction or credit arising as a result of the application of Regulation 109 or Part XV of the VAT Regulations 1995 (SI 1995/2518). You may disregard paragraph 2a of the requirement if any of paragraphs a), b) or c) below apply: a) all the exempt supplies concerned are supplies which fulfil any of the following descriptions: i. supplies within Paragraphs 5 to 11 of Schedule 10 to the Value Added Tax Act 1994 and made to a person who is not connected to you ii. permissible exempt supplies iii. supplies within Group 5 of Schedule 9 to the Value Added Tax Act 1994 which are incidental to one or more of your business activities b) you make exempt supplies, but intend or expect the input tax incurred on your capital expenditure on the property that is attributed to those exempt supplies, including any subsequent adjustments to initial input tax deduction, will not exceed £5,000 c. you expect to be entitled to full credit for all the input tax incurred on your capital expenditure on the property as a result of the application of section 33(2) of the Value Added Tax Act 1994.
4.	The exempt supplies have been incidental to the main use of the land or building. For example, where you have occupied a building for taxable purposes the following would be seen as incidental to the main use and the condition would be met: allowing an advertising hoarding to be displayed granting space for the erection of a radio mast receiving income from an electricity sub-station. The letting of space to an occupying tenant, however minor, is not incidental.

5.3 Automatic permission condition 3

This condition has been written in a legally precise form in order to make sure it cannot be used for tax avoidance purposes. There is a flow diagram with notes at Annex 2 that’s been designed to help in understanding this automatic permission condition.

5.4 What you need to do if you meet one of the conditions

If you meet one of the conditions and you decide that you want to opt to tax you still need to write to us to notify your option. You should state in your notification, preferably on form VAT 1614A, that, although you have made previous exempt supplies of the land or building, you satisfy one of the conditions for automatic permission (clearly identifying which one). Section 4 gives more information on notifying an option and the records you need to keep.

5.5 If you do not meet any of the conditions

If you do not meet any of the conditions for automatic permission you must obtain our written permission before you can opt to tax.

5.6 How to apply for permission

This section has force of law.

An application for prior permission to opt to tax (for the purpose of paragraphs 28 and 29 of Schedule 10 to the Value Added Tax Act 1994) must be made on form VAT 1614H: application for permission to opt and must contain the information requested on that form.

5.7 When your option takes effect

Once permission is granted, your option will automatically take effect from your application date, or from any later date you request in your application. There is no need for you to notify your option to tax separately once permission is granted.

If you wish your option to take effect from your application date, keep evidence of the date you submit the application form (such as a certificate of posting).

5.8 Circumstances HMRC will grant permission

HMRC cannot grant you permission to opt to tax until you provide all the information requested in application form VAT1614H and any additional information that we may ask for. Occasionally we will refuse permission if we are not satisfied that granting permission would result in a fair and reasonable attribution of input tax. Interim letters will no longer be issued, Instead, if we are satisfied, we will issue an acknowledgement of the option to tax and its effective date.

5.9 If you fail to ask for permission

If you notify HMRC of an option to tax without obtaining prior permission, in circumstances under which permission is required (read paragraph 5.1), your option to tax will be invalid. But we have the discretion to treat the option as a valid option. HMRC will generally only exercise this discretion in cases where either:

• tax would otherwise be at risk
• you took reasonable steps, before notifying the option, to determine whether permission was required, but failed to realise it was required due to a minor error or oversight, for example, you might have made a one off exempt supply which you had overlooked

If you think this should apply to you, write to the Option to Tax Unit with details of your situation.

6. Option to tax and VAT registration

6.1 Liability to register for VAT

If you’re not already registered for VAT, you should read Who should register for VAT (VAT Notice 700/1). If you are required to or wish to register you should complete an application form and send it to the appropriate Registration Unit (listed in VAT Notice 700/1: Should I be registered for VAT?). The Registration Unit will need to be satisfied that you will be making taxable supplies, so you should send your option to tax notification with your application form. If you need HMRC’s permission before opting to tax, you cannot register before we have given permission, so you should also enclose a copy of your written permission with your application.

If your turnover falls below the registration threshold and you cancel your VAT registration, you still have the option to tax. Read section 12 for more details.

6.2 How long you must keep records

You must keep your correspondence and any record of your decision to opt to tax for a minimum of 6 years. You should keep these records for longer than 6 years. An option to tax cannot normally be revoked until at least 20 years have passed — read section 8.

6.3 How the option to tax affects group registrations

6.3.1 A relevant associate

An option to tax made by a member of a VAT group is generally binding upon other members of the same VAT group. A body corporate that is bound by another body corporate’s option to tax under these rules is known as a ‘relevant associate’ of the opter. If you’re a relevant associate, you must normally charge VAT on any supplies you make of the opted property, even after you have left the VAT group.

For information about VAT groups, read Group and divisional registration (VAT Notice 700/2).

You become a relevant associate if you are in the same VAT group as either:

• the opter when the option first has effect
• the opter at any later time when the opter has an interest in the opted property
• another ‘relevant associate’ of the opter when that relevant associate has an interest in the opted property

6.3.2 Circumstances where you should stop being a ‘relevant associate’

You can stop being a ‘relevant associate’ in one of 3 ways, by:

• meeting the basic conditions explained in paragraph 6.3.3 — you will automatically stop being a relevant associate
• meeting all of the conditions in section E and notifying us on form VAT1614B — read paragraph 6.3.6
• obtaining our permission — read paragraph 6.3.7

6.3.3 Automatically stop being a relevant associate

You will automatically stop being a relevant associate of an opted property if you meet all of the following conditions:

• you’re no longer in the VAT group in which you became a relevant associate
• you do not hold any interest in the opted property
• you have not disposed of the opted property on terms that may require the buyer to make additional payment in the future, such payment is often referred to as an ‘overage’ and can be contingent on such things as the buyer obtaining planning permission
• you’re not ‘connected’ with any person who is the opter or relevant associate and who holds an interest in the land

If you meet all of these conditions, you automatically stop being a relevant associate from the time that all 4 conditions are met. There’s no need for you to notify HMRC or to ask our permission.

6.3.4 Circumstances where a person is connected with another

Read paragraph 13.7.

6.3.5 Stop being a relevant associate after 20 years

If you do not meet the basic conditions in paragraph 6.3.3, you will stop being a relevant associate of an opter if you both:

• meet all of the conditions in section E
• notify us on form VAT1614B — read paragraph 6.3.6

Section E

This section has force of law.

Conditions for a body corporate to cease to be treated as a relevant associate of an opter (for the purpose of paragraph 3(5)(a) of Schedule 10 to the Value Added Tax Act 1994 (‘the VAT Act 1994’)).

A body corporate ceases to be a relevant associate of an opter at the time when it meets all of the following conditions:

Number	Condition
1.	The grouping condition The body corporate has ceased to be treated as a member of the VAT group (read section 43 of the VAT Act 1994) by virtue of which it became a relevant associate of the opter.
2.	The 20 year condition The body corporate has: held any relevant interest in the building or land acquired whilst a member of that VAT group for a period of at least 20 years, and been treated as a relevant associate of the opter for a period of at least 20 years.
3.	The capital item condition Any land or building that is subject to the option is not, in relation to the body corporate, subject to input tax adjustment as a capital item under the Capital Goods Scheme.
4.	The valuation condition Neither the body corporate, nor any person connected with it, has, within a period of 10 years ending on the date that the body corporate ceases to be a relevant associate, made a supply of a relevant interest in the building or land that is subject to the option that: was for a consideration that was less than the open market value of that supply, or arose from a relevant grant.
5.	The pre-payment condition No supply of goods or services has been made for a consideration to the body corporate (or to a person connected with it) which will be wholly or partly attributable to a supply or other use of the land or buildings made by that body (or by a person connected with it) more than 12 months later.

Explanatory Note 1
‘Relevant interest in the building or land’ means an interest in, right over or licence to occupy the building or land (or any part of it).

Explanatory Note 2
‘Relevant grant’ means a grant that the grantor intends or expects will give rise to a supply for a consideration significantly greater than any consideration for any earlier supply arising from the grant (except as a result of a rent review determined according to normal commercial practice).

Explanatory Note 3
For the purposes of conditions 4 and 5 above, any question whether a person is ‘connected’ with another person is to be decided as it would be for the purposes of Part 1 of Schedule 10 to the Act.

6.3.6 How to notify HMRC

This section has force of law.

Notification of cessation to be a relevant associate (for the purpose of paragraph 4 of Schedule 10 to the Value Added Tax Act 1994) must be made on form VAT1614B and must contain the information requested on that form.

6.3.7 Applying for permission to stop being a relevant associate

You can apply for permission to stop being a relevant associate if you do not meet all of the conditions in paragraph 6.3.2 or section E.

6.3.8 The form your application should take

The next sentence has force of law.

Application for permission to cease to be a relevant associate (for the purpose of paragraph 4 of Schedule 10 to the Value Added Tax Act 1994) must be made on form VAT1614B and must contain the information requested on that form.

6.3.9 When we’ll grant permission

HMRC will not grant permission unless you meet conditions 1 and 2 of section E.

In deciding whether or not to grant permission, we will consider whether you or a third party received a VAT benefit as a result of your actions.

6.3.10 When you’ll stop being a relevant associate after HMRC grant permission

You’ll stop being a relevant associate from the date permission is granted, except in the circumstances explained in section E.

HMRC can only allow an earlier date if both of the following apply:

• you previously gave a notification to stop being a relevant associate
• you believed, in error, that you met the conditions in section E

In this case, we may allow you to stop being a relevant associate from the date stated in the notification if we are satisfied that the reasons for failing to meet the conditions are insignificant.

When we grant permission, we can apply conditions. If you break these conditions, we may treat your original application for permission as invalid.

7. Responsibility for opting to tax

7.1 Who’s responsible for making the decision and notifying the option to tax

The person responsible for making the decision and notifying the option to tax depends on:

• the type of legal entity holding (or intending to hold) the interest in the land or building
• who within that entity has the authority to make decisions concerning VAT

In most cases this will be:

• the sole proprietor
• one or more partners (or trustees)
• a director
• an authorised administrator

If you appoint a third party to notify an option to tax on your behalf, HMRC requires written confirmation that the third party is authorised to do so.

You will find details of persons who HMRC is prepared to accept as signatories acting on behalf of the various legal entities for the express purpose of notifying an option to tax in paragraph 7.6. We also wish to be notified if you withdraw that authority.

The next paragraphs explain who is responsible in other, more unusual situations.

7.2 Beneficial owners

In some cases there may be both a beneficial owner and a legal owner of land or buildings. An example of this is a bare trust, where a trustee is the legal owner but the benefit of the income from the land or building passes to the beneficial owner. For VAT purposes it is the beneficial owner who is making the supply of the land or building. It is the beneficial owner who should opt to tax, and who must account for any VAT due on the supply and claim any input tax that arises.

This is not the case when there are multiple beneficiaries, such as unit trusts and pension funds. In such situations the person making the supply is the trustee who holds the legal interest and receives the immediate benefit of the consideration.

7.3 Joint owners

You are a joint owner if:

• you and another person buy land or buildings together
• you sell a part share of your land or buildings to another person

If you are a joint owner, it is likely that you and the other person will make the supply of the jointly owned land or building together.

If you want supplies of the jointly owned land or buildings to be standard-rated, you should notify a single option to tax, together with the other person. You will then make the taxable supply of the land or building together, as one taxable person.

To account for output tax and to be able to recover input tax, you and the other person should register for VAT together as if you are a partnership, even if you are not in partnership for any other purpose.

7.4 Limited partnerships

Under the Limited Partnership Act 1907 every limited partnership must be registered with the Registrar of Companies (Companies House). A limited partnership which is not registered with Companies House, such as an overseas limited partnership, cannot be treated as a limited partnership for VAT purposes and will normally be registered as a general partnership.

A limited partnership is made up of one or more ‘general’ partners, who have unlimited liability, and one or more ‘limited’ partners, who are not liable for debts and obligations of the firm. A limited partner cannot take part in the management and running of the partnership business. If HMRC finds that a limited partner is doing this, we will treat them as a general partner.

If there is only one general partner and one or more limited partners, the general partner is treated as a sole proprietor for VAT registration purposes. Likewise if there are 2 or more general partners and one or more limited partners, the general partners are treated as a partnership for VAT registration purposes. It’s the general partner (or partners) who should opt to tax and account for any VAT due on the supply and claim any input tax that arises.

If title to the land or building is held jointly in the names of the general partners and the limited partners, only the titleholders can make any supplies of that land or building together. This suggests that the limited partner is involved in the management and running of the partnership, and as such HMRC treats them as a general partner and amends the VAT registration to reflect that. If the partnership decides to opt to tax, one or more of the partners should sign the notification.

7.5 Limited liability partnerships

A limited liability partnership has a separate legal status from its members and can enter into contracts in its own right. This means that the individual members of the limited liability partnership are protected from debts or liabilities arising from negligence, wrongful acts or conduct of another member, employee or agent of the partnership.

A limited liability partnership is a corporate body and must register for VAT, subject to the normal registration rules. If the partnership decides to opt to tax, one or more members, as the authorised signatory, must sign the notification — read paragraph 7.6.

7.6 Authorised persons for particular legal entities

For an option to tax to be notified effectively, (whether on a VAT 1614A form or by alternative means), it must be signed and dated by an authorised person who has the legal capacity to notify HMRC of such a decision. An authorised person can also give another person the authority to notify HMRC on their behalf.

If the signatory is not an authorised person, or has not had such authority granted to them by an authorised person, the option to tax may be invalid.

An authorised person must make it clear that the person being authorised to act on behalf of the opter is doing so with the full authority of the opter to act as a representative of the opter in all, or some, matters pertaining to the option to tax.

The minimum details required for authorisation are the:

• opters’ name and address
• name and signature of the authorised person
• name, address, signature and date of the person authorised by the opter to act on their behalf
• opters’ agreement to be bound by the actions of the person they have authorised in respect of Part 1, Schedule 10 of the VATA 1994 (this will include opting to tax, asking permission and revoking an option to tax unless specified otherwise)

Suggested form of words for authorisation by letter or email

I authorise (the named person) to correspond with HMRC and sign all forms in relation to (all VAT matters including) notification and revocation of the option to tax and all other matters covered in Part 1, Schedule 10 of the Value Added Tax Act 1994 in respect of the business, unless otherwise specified in writing.

Signed (insert authorised signature as per table) and date.
Signed (insert signature of person being authorised) and date.

List of authorised signatories

Legal entity	Authorised persons
Sole trader (proprietor)	Owner of the business
Trust	Trustee (or partner if VAT2 is completed)
Partnership (England, Wales and Northern Ireland)	Any partner on VAT2
Partnership (Scotland)	Any Partner
Limited partnership (England, Wales and Northern Ireland)	General partner
Limited partnership (Scotland)	General partner
Limited Liability Partnership	Designated member or member
Unincorporated Association	Chairperson, treasurer, trustee or company secretary
Limited company	Company director or company secretary
Community Interest Company (CIC)	Company director or company secretary
Charitable Incorporated Organisation (CIO)	Director, chairperson, treasurer, trustee, or company secretary
Other organisations incorporated by a specific Act of Parliament or Royal Charter	Director (both executive and non-executive), company secretary (or equivalent) or trustee (if a charity)
Community Benefit Society (BenCom)	Chairperson, treasurer, trustee or company secretary (or an authorised person holding any of those positions in the controlling parent company)
Local Authority	Section 151 officer (or Section 95 officer in Scotland), town clerk, head of finance, or treasurer
Housing associations and other providers of social housing	Board member or executive director
School or college	Bursar, governor, principal, head teacher or chief financial officer
University	Finance director, chief financial officer, director of finance, head of finance or bursar
Government department	Nominated VAT liaison officer or finance manager (or a person senior to either)
Overseas entity	Director or manager
Power of attorney	Anyone granted a power of attorney to administer or manage the tax affairs of the owner of a property
Property Authorised Investment Fund (PAIF)	Director or company secretary of the authorised corporate director
Authorised Contractual Schemes (ACS)	Director or company secretary of the authorised corporate director
Self-invested personal pension (SIPPs)	Trustee
Pension fund	Trustee, or the director or secretary of a corporate trustee
VAT group	Depends on the membership of the VAT group — refer to the relevant entity in this table

In most cases, an authorised person listed here will be an individual. But this will not always be the case. For example, the partners in a partnership might themselves be corporate bodies. If so, the notification should be signed by someone who would be an authorised person for one of the corporate bodies.

Contact the Option to Tax Unit if:

• your legal entity is not listed in the table
• you do not have a suitable authorised person

7.7 Electronic signatures

7.7.1 If you are notifying an option as a business

You can submit the form with an electronic signature but we need evidence that the signature is from a person authorised to make the option on behalf of the business.

Examples of supplementary evidence include emailing the form:

• with an email from the authorised signatory to the sender within the business, giving authority to use the electronic signature
• from the authorised signatory with their sign off in the email and the form
• with an email chain or a scan of correspondence showing the authority given by an authorised signatory

7.7.2 If you are notifying an option as an agent

If you are an agent notifying us that your customer has made a decision to opt and you email the form with an electronic signature, you need to send us proof that:

• the signature is from a person authorised to make the option on behalf of the business
• authority has been granted to you by the business to use the electronic signature

Examples include emailing the form:

• with a current email or email chain from an authorised signatory of your customer’s business, giving you authority to use this signature and send it to us on their behalf
• with a scan of correspondence showing authority is granted by an authorised signatory to use their electronic signature on the form and to also send this form to us on their behalf

8. Revoking an option to tax

8.1 Revoking an option to tax within the 6 month ‘cooling off’ period

8.1.1 When you can revoke without prior permission

If you change your mind within 6 months of the effective date of your option to tax, you can revoke your option to tax if you meet all the conditions set out in a) to d) in paragraph 8.1.2 together with one of the 3 conditions in section F. You will not need our prior permission but you must notify us before the end of the 6 month period and your notification must be made on form VAT1614C (read paragraph 8.1.4).

8.1.2 The conditions for revoking

The conditions are:

a) less than 6 months have passed since the day on which the option had effect

b) no tax has become chargeable on a supply of the land as a result of the option

c) no transfer of a going concern has occurred

d) you have notified the revocation to HMRC on form VAT1614C — read paragraph 8.1.4

Additional conditions are set out in section F. To revoke your option to tax you must satisfy conditions a to d, plus one of the 3 conditions in section F, or obtain our permission. Where HMRC grants permission we may impose conditions.

Section F

This section has force of law.

Additional conditions for revoking an option to tax less than 6 months after the day on which it had effect (provision made under paragraph 23 (4) of Schedule 10 to the Value Added Tax Act 1994).

A revocation of an option to tax under paragraph 23 of Schedule 10 to the Value Added Tax Act 1994 is effective only if one of conditions (1) to (3) below is met in relation to the option, or if the taxpayer gets the prior permission of the Commissioners on an application made to them before the end of the 6 month period mentioned in paragraph 23(1)(a). Where the taxpayer seeks the prior permission of the Commissioners, they may specify conditions subject to which their permission is given and, if any of those conditions are broken, the Commissioners may treat the revocation as if it had not been made.

The conditions are that:

1. neither the person who exercised the option to tax (‘the opter’) nor any relevant associate of the opter has recovered extra property input tax;
2. by virtue of the revocation, the opter and all relevant associates of the opter would be liable to account to the Commissioners under regulation 107 or 108 of the Value Added Tax Regulations 1995 (‘the VAT Regulations 1995’) for all of the extra property input tax they have recovered, or
3. extra property input tax has been recovered entirely on one capital item and amounts to less than 20% of the total input tax incurred on that item.

Definition

‘Extra property input tax’ means input tax attributable to supplies which, if made at a time when the option has effect, would be taxable supplies by virtue of the option.

‘Capital item’ means a capital item to which part 15 of the VAT Regulations 1995 applies by virtue of regulation 113 of those Regulations.

8.1.3 Explanation of terms used in section F

VAT Regulation 107 relates to the adjustment of partial exemption attribution at the end of a ‘longer period’ (normally a year) and would apply where the property input tax credit was originally computed under a partial exemption method and revocation falls within the same ‘longer period’.

VAT Regulation 108 (commonly called ‘clawback’) requires adjustment of input tax credited as attributable to intended taxable supplies when the intended use of the inputs concerned changes before use starts. This will apply in most circumstances where revocation happens before the property is first used after incurring the input tax.

Information about ‘longer period’ adjustments and ‘clawback’ can be found in Partial exemption (VAT Notice 706). Information about capital items can be found in Capital Goods Scheme (VAT Notice 706/2).

8.1.4 How to notify HMRC

The next sentence has force of law.

Notification of revocation of an option to tax within the 6 month ‘cooling off’ period (for the purpose of paragraph 23 of Schedule 10 to the VAT Act 1994) must be made on form VAT1614C and must contain the information requested on that form.

8.1.5 When to ask permission to revoke

You can ask permission to revoke if you meet conditions a to d of paragraph 8.1.2 but do not meet any of the 3 additional conditions in section F.

8.1.6 How to apply for permission

The next sentence has force of law.

Application for permission to revoke an option to tax within the 6 month ‘cooling off’ period (for the purpose of paragraph 23 of Schedule 10 to the VAT Act 1994) must be made on form VAT1614C and must contain the information requested on that form.

You must submit your application within 6 months of the effective date of your option to tax. Your application for permission will also be treated as notification of your revocation, so there is no requirement to make a separate notification once permission is granted.

When considering whether to grant permission, HMRC will give particular consideration to whether you or a third party has received a VAT benefit as a result of your actions.

8.1.7 When the revocation takes effect

The revocation of an option to tax during its ‘cooling off’ period has effect from the day on which the option was exercised. But if HMRC set conditions when granting permission to revoke and any of these are broken, we may treat the revocation as invalid.

8.1.8 How to adjust input tax after revoking your option

If you revoke an option to tax under the ‘cooling off’ rules, you should adjust your input tax in accordance with the appropriate rules explained in Partial exemption (VAT Notice 706) and Capital Goods Scheme (VAT Notice 706/2) (also read paragraph 8.1.3).

8.1.9 How the ‘cooling off’ period applies in relation to real estate elections

If you choose, at the time of making a real estate election, to convert existing ‘global options’ into separate options to tax, you cannot revoke these new separate options under the ‘cooling off’ period.

Read section 14 for information about real estate elections.

8.2 Automatic revocation of an option where no interest has been held for more than 6 years

8.2.1 Circumstances where automatic revocation occurs

An option to tax is revoked where the opter has not held an interest in the opted building or land for a continuous period of 6 years commencing at any time after the option to tax has effect. The revocation is automatic and no notification is required. But the revocation is subject to the rules described in paragraph 8.2.2 and will not be applicable in all cases.

8.2.2 Circumstances in which the automatic revocation does not apply

The automatic revocation will not occur where any of the following circumstances apply. All references to ‘relevant time’ mean the time the option would otherwise be revoked:

First circumstance

Where the opter has sold the property on terms that may require the buyer to make additional payment after the ‘relevant time’. Such payment is often referred to as an ‘overage’ and can be contingent on such things as the buyer obtaining planning permission.

The next 3 circumstances can only apply if the opter is or has been a member of a VAT group.

Second circumstance

Where a relevant associate of the opter in relation to the opted property (read paragraph 6.3) has sold the property on terms that may require the buyer to make additional payment after the ‘relevant time’ (read 1.).

Third circumstance

Where before the ‘relevant time’ a relevant associate of the opter in relation to the opted property (read paragraph 6.3) left the opter’s VAT group, and at the time of leaving, the relevant associate either:

• had an interest in the property
• had, prior to leaving the VAT group, disposed of an interest on terms that might have required the buyer to make additional payment at a later date (read 1.)
• was connected to the opter or another relevant associate of the opter and that person had an interest in the property

Fourth circumstance

Where, at the ‘relevant time’, a relevant associate of the opter in relation to the opted property (read paragraph 6.3) is a member of the same VAT group and either currently holds an interest in the property or has held one during the previous 6 years.

8.3 Revoking an option where more than 20 years have elapsed since it first had effect

8.3.1 Circumstances where you can revoke without prior permission

You may revoke an option to tax where more than 20 years have elapsed since the option first had effect if you meet either condition 1 or conditions 2 to 5 of section G. You will not need HMRC’s permission, but you must notify us on form VAT1614J — read paragraph 8.3.4.

8.3.2 When the option first has effect

Your option first had effect on the day you exercised the option or any later day that you specified when opting to tax (read paragraph 4.3).

8.3.3 The conditions for revoking

Section G

This section has force of law.

Conditions for revoking an option to tax when more than 20 years have elapsed since the option first had effect (for the purposes of paragraph 25(1)(a) of Schedule 10 to the Value Added Tax Act 1994 (‘the VAT Act 1994’)).

A taxpayer may revoke an option to tax made by the taxpayer if either condition 1 or all of conditions 2 to 5 are met:

Number	Condition
1.	The relevant interest condition Neither the taxpayer nor any relevant associate connected with the taxpayer has a relevant interest in the building or land at the time when the option is revoked, and if the taxpayer or a relevant associate of the taxpayer has disposed of such an interest, no supply for the purpose of the charge to VAT in respect of the disposal - (i) is yet to take place, or (ii) would be yet to take place if one or more conditions (such as the happening of an event or the doing of an act) were to be met.
2.	The 20 year condition The taxpayer or a relevant associate connected with the taxpayer held a relevant interest in the building or land: after the time from which the option had effect, and more than 20 years before the option is revoked.
3.	The capital item condition Any land or building that is subject to the option at the time when it is revoked does not fall, in relation to the taxpayer or a relevant associate connected with the taxpayer, for input tax adjustment as a capital item under part 15 of the Value Added Tax Regulations 1995 (adjustments to the deduction of input tax on capital items).
4.	The valuation condition Neither the taxpayer nor any relevant associate connected to the taxpayer has made a supply of a relevant interest in the building or land subject to the option in the 10 years immediately before revocation of the option that: was for a consideration that was less than the open market value of that supply, or arose from a relevant grant.
5.	The pre-payment condition No part of a supply of goods or services made for consideration to the taxpayer or a relevant associate connected with the taxpayer before the option is revoked will be attributable to a supply or other use of the land or buildings by the taxpayer more than 12 months after the option is revoked.

Explanatory Note 1

‘Taxpayer’ means
(a) a person who exercised the option to tax or is treated as making that option by virtue of a real estate election pursuant to paragraph 21 of Schedule 10 to the Act, and
(b) in relation to an option to tax treated as exercised by virtue of a real estate election made pursuant to paragraph 21 of Schedule 10 to the VAT Act 1994 by a body corporate treated as a member of a group under sections 43A to 43D of the Act other than the person described in (a), the body corporate whose relevant interest gave rise to the option to tax.

Explanatory Note 2

‘Relevant interest in the building or land’ means an interest in, right over or licence to occupy the building or land (or any part of it).

Explanatory Note 3

‘Relevant grant’ means a grant that the taxpayer intends or expects will give rise to a supply made after the option is revoked for a consideration significantly greater than any consideration for any supply arising from the grant before the revocation (except as a result of a rent review determined according to normal commercial practice).

Explanatory Note 4

In relation to condition 2 it does not matter whether, at the time the option is revoked, the taxpayer continues to hold the relevant interest in the building or land that meets the condition.

Explanatory Note 5

For the purpose of condition 3:

(1) land or buildings that fall for input tax adjustment as a capital item under Part 15 of the VAT Regulations shall not be regarded as so doing if the relevant amount does not exceed £10,000;
(2) the relevant amount is the total of the amounts that the taxpayer or a relevant associate connected with the taxpayer would be required to pay to the Commissioners pursuant to regulation 115 (2) of the VAT Regulations in respect of intervals ending after the revocation of the option if:
(a) that person were a taxable person during such intervals; and
(b) the land or building concerned were used, after the revocation of the option, only for making supplies that are not taxable supplies.

Explanatory Note 6

For the purposes of conditions 1 to 5 any question whether a person is ‘connected’ with another person is to be decided as it would be for the purposes of Part 1 of Schedule 10 to the Act.

Explanatory Note 7

‘Relevant Associate’ means a body corporate as defined in paragraph 3 of Schedule 10 to the Act.

Further notes about section G

The term ‘relevant associate’ is explained in paragraph 6.3.

The second paragraph of condition 1 prevents revocation where the opter or a relevant associate has disposed of the property on terms which may require further payment to be made in the future. Such payment is commonly referred to as an ‘overage’ and can be contingent on such things as the granting of planning permission.

Guidance on ‘connected’ persons is in paragraph 13.7.

8.3.4 How to notify HMRC

The next sentence has force of law.

Notification of revocation of an option to tax after 20 years (for the purpose of paragraph 25 of Schedule 10 to the VAT Act 1994) must be made on form VAT1614J and must contain the information requested on that form.

8.3.5 When your revocation will take effect

Your revocation will take effect from the day that you specify when you notify HMRC. This cannot be any earlier than the day on which you notify us.

8.3.6 When to ask permission to revoke

You can still ask our permission to revoke if you do not meet the conditions in section G.

8.3.7 How to apply for permission

The next sentence has force of law.

Application for permission to revoke an option to tax after 20 years (for the purpose of paragraph 25 of Schedule 10 to the VAT Act 1994) must be made on form VAT1614J and must contain the information requested on that form.

8.3.8 How HMRC will consider granting permission

HMRC will not grant permission unless you meet condition 2 of section G.

In deciding whether or not to grant permission, we will give particular consideration to whether or not you or a third party has received a VAT benefit as a result of your actions.

8.3.9 When your revocation will take effect if HMRC grants permission

If HMRC grants permission, revocation will take effect from the day we grant permission or such earlier or later day or time we specify. For this purpose, we may specify a time by reference to the happening of a particular event or meeting of a condition. For example, we may specify that revocation will take effect after the sale of a property has been completed.

We can only specify an earlier day if you previously gave notification of revocation believing, in error, that you met the conditions in section G. In such cases we may allow the revocation to take effect from the day specified in your original notification, but we will only allow this where we are satisfied that the reasons for failing to meet the conditions are insignificant.

In granting permission HMRC may specify further conditions subject to which the permission is given. If any of these conditions are subsequently broken we may treat the revocation as if it had not been made.

9. Input tax

9.1 Rules on reclaiming input tax

Your entitlement to recover any input tax you incur will depend on the liability of the supplies you make. This may be affected by your option to tax but you cannot assume that an option will allow input tax recovery and must still consider what supplies you will make and their liability.

If you makes	Then you will normally be
taxable supplies of the land or buildings	able to recover any input tax relating to those supplies
wholly exempt supplies of the land or building (read section 3)	unable to recover any input tax relating to those supplies
supplies that are both taxable and exempt, for example you may have opted to tax a building that is to be used for both commercial and residential purposes	able to recover only the input tax relating to the taxable supply, Partial exemption (VAT Notice 706) explains how to work out how much input tax relates to taxable supplies.

General information about input tax can be found in VAT guide (VAT Notice 700).

9.2 What happens to input tax incurred before opting to tax

9.2.1 Recovering input tax relating to supplies of land or buildings if the supplies are taxable independent of any option

You can recover input tax relating to supplies of land or buildings if the supplies are taxable independent of any option. For example, a freehold sale of a commercial building within 3 years of its completion is always standard-rated. So if you construct a commercial building with the intention to make such a sale you may recover the input tax you incur.

But many supplies of land and buildings will only become taxable as a result of an option to tax. You may only recover input tax where you intend to make a taxable supply. For guidance on whether a taxable intention exists, read paragraphs 9.2.2, 9.2.3 and 9.2.4.

9.2.2 Recovering input tax that relates to future supplies despite not having yet made your option

In certain circumstances, you can recover input tax now that relates to future supplies, despite not having yet made your option. Input tax incurred prior to the making of supplies can be recoverable where you have a clear intention, at the time the costs are incurred, that the supplies of the buildings or land will be taxable. An option to tax is by far the best evidence of an intention to make taxable supplies for land and property transactions.

Where, in exceptional circumstances, you wish to delay the making of the option until a future date you may still be able to recover the input tax relating to supplies which will follow the option. This will only be the case where you are able to produce unequivocal documentary evidence, at the time you wish to reclaim your input tax, that you intend your supplies to be taxable.

9.2.3 Types of documents HMRC will accept as evidence that you intend to opt to tax and make taxable supplies

It’s unlikely that any single document alone will provide sufficient evidence and you’re advised to hold a number of separate documents to prove your intention. HMRC will normally consider evidence as satisfactory where it involves third parties and shows a firm commitment to the making of taxable supplies. For example:

• a signed agreement or contract that specifies that the vendor will opt to tax prior to the sale
• an investment appraisal or business plan accepted by a bank that confirms that supplies will be treated as taxable
• marketing literature that has been distributed to the public and where the scale and type of distribution, together with the nature of the advertisement itself, makes it clear that taxable supplies will be made
• instructions or advice from professional advisers that specifies the VAT treatment, together with confirmation of your acceptance of the advice
• any other similar document that shows that the intention is to make taxable supplies

HMRC cannot give a list of unacceptable documents. But any document that merely sets out an option or number of options will not be accepted as unequivocal documentary evidence of an intention to make taxable supplies.

9.2.4 Action you must take having recovered input tax relating to future taxable supplies

Any documents used as evidence of intention must be retained and made available to HMRC on request.

Where the intention to make taxable supplies changes, a record must be kept of the date these changes occurred together with appropriate evidence. VAT previously deducted before the intention changed may need to be adjusted and repaid to HMRC — read Partial exemption (VAT Notice 706) for details.

If you have recovered input tax on the basis of an intention to opt to tax and wish to retain the input tax recovered, you must make an option to tax at the very latest before any supplies of the land or buildings are made, and notify the option as detailed in paragraph 4.2.

9.2.5 Other circumstances where input tax incurred prior to an option to tax can be recovered

There are 3 circumstances:

• where, prior to supplies being made, your intention to make exempt supplies changes to an intention to make taxable supplies you may be able to recover previously exempt input tax under the ‘payback’ rule - you will find more about the payback rule in Partial exemption (VAT Notice 706) — but where your change of intention is not accompanied by an option to tax you will need to retain suitable evidence of your new intention (read paragraph 9.2.3)
• where you made exempt supplies of the land or building before opting to tax and incurred exempt input tax you may be able to recover this under a longer period adjustment (read Partial exemption (VAT Notice 706))
• if you have made exempt supplies and the initial attribution of your input tax has been finalised as exempt before you opt, you may be able to make adjustments under the Capital Goods Scheme to reflect your taxable use after the option — read paragraph 9.5)

In the circumstances described in the last 2 bullet points, you may need to obtain our permission before you can opt to tax — read section 5.

9.3 Speculative and abortive costs

As a developer you may spend time and effort investigating potential projects, such as looking for sites and assessing their suitability. Where you have:

• a clear intention of what supplies you intend to make you must attribute the input tax incurred to the liability of the intended supply
• no firm intention of what supplies you will make, the input tax on the costs you incur is ‘residual’ for partial exemption purposes

Some potential projects are not followed through, and in the end no supplies are actually made. If costs are wasted then no adjustment to how input tax on them was attributed is needed.

If up to the time of aborting the project you have no firm intention regarding the liability of the supplies you wish to make (and as a result are unable to attribute the input tax to the liability of the intended supply), the related input tax should be left as residual.

When you decide to proceed with a project you will have a clear intention as to what supplies you will make. It is often at this point that you decide whether to opt to tax for land and property supplies.

If you treated the input tax as residual previously you may have to adjust the input tax accordingly under the ‘payback’ and ‘clawback’ rules. Input tax on the ongoing costs should be attributed to the expected taxable or exempt supplies.

You can find further information in Partial exemption (VAT Notice 706).

9.4 VAT incurred prior to your registration

Once you have registered for VAT as a result of opting to tax you may be entitled to claim relief for VAT incurred on supplies related to the opted property obtained before you registered for VAT.

Section 5.2 of Who should register for VAT (VAT Notice 700/1) gives further information.

Section 13 of Capital Goods Scheme (VAT Notice 706/2) also has more information if the property is a capital item.

9.5 Capital Goods Scheme

If you acquire land or buildings which are considered to be capital items for the purposes of this scheme, you must review their use in your business over a series of intervals, normally lasting 10 years. If there are changes in the extent to which they are used for making taxable supplies you must make input tax adjustments to take account of this. The Capital Goods Scheme will normally apply if you incur VAT on the purchase of the property, or on capital works, where VAT bearing costs, net of VAT, are £250,000 or more. But it will not apply where you have bought property purely for the purpose of selling it on. You will find more information about how the scheme works in Capital Goods Scheme (VAT Notice 706/2).

10. Time of supply (tax point)

10.1 Normal tax point rules

The normal tax point rules apply to all supplies of land or buildings. These rules are explained in detail in VAT guide (VAT Notice 700).

If you make leasehold supplies and have opted to tax, a tax point will normally occur when you either issue a tax invoice or receive a payment, whichever is the earlier.

If you’re selling the freehold of land or a building a basic tax point will normally occur at the time of legal completion under the terms of the contract, when the freehold is conveyed to the buyer. The equivalent under Scottish land law is the time of delivery of the disposition.

Any payments you get after the basic tax point do not create a tax point. If you issue a VAT invoice within 14 days after the basic tax point, then the date of issue of that invoice becomes the tax point. If you issue a VAT invoice or receive a payment before the basic tax point, then an actual tax point will be created by whichever happens first, to the extent of the amount invoiced or payment received.

10.2 Deposits and tax points

Often on the sale of land or buildings, the buyer pays a deposit at exchange of contracts, followed by payment of the balance on the completion date.

An independent stakeholder usually holds the deposit until completion, and the seller receives no payment until that time. In these circumstances, the deposit payment will not create a tax point. It follows that if the deposit is paid direct to the seller or their agent, the payment does create a tax point. In both cases, an earlier tax point arises if a tax invoice is issued before the seller receives any payment.

10.3 If you get arrears of rent following your option to tax

In a tenanted building, a tax point might not occur until you get payment. In these circumstances, if you opt to tax after the rent becomes due but before it’s paid, you must account for output tax on the rental receipt. This is the case even if the payment covers a period before your option to tax took effect.

11. Transfer of a business as a going concern

11.1 What ‘transferring a business as a going concern’ means

Transfer a business as a going concern (VAT Notice 700/9) explains the VAT position if you’re selling or transferring your business and its assets, or part of it.

In certain circumstances, special transfer of a going concern (TOGC) rules apply, and the sale will not be treated as a supply for VAT purposes, so no VAT should be charged. The transfer of a businesses or part of a business is treated as a VAT-free TOGC where all of the following conditions are met:

• it’s capable of separate operation after the sale has taken place
• it’s sold as a going concern
• it’s not part of a series of immediately consecutive transfers of a business
• the buyer intends to carry on the same kind of business
• in relation to certain transfers of land and buildings, further conditions are met

It’s important to note that where the seller or transferor is a VAT-registered business the buyer must also be a taxable person for VAT purposes or become one as a result of the transfer.

As the TOGC rules are mandatory and not optional, it’s important to establish at the outset whether the sale or transfer of the business is or is not a TOGC.

11.2 If you’re transferring land or buildings as part of a TOGC

For the transfer to be treated as a VAT-free TOGC, you must meet all the conditions in Transfer a business as a going concern (VAT Notice 700/9).

In addition you must meet 2 further conditions where you either:

• have opted to tax the land or buildings being transferred and the option is not disapplied in relation to the transfer
• are transferring the freehold of a ‘new’ building and the supply, but for the TOGC, would be subject to the standard rate of VAT

The additional conditions are that the buyer must have both:

• opted to tax or made a real estate election (these must have been both notified to HMRC and effective on or before the relevant date — paragraph 14.8 explains how to notify a real estate election
• notified you that their option to tax will not be disapplied under the anti-avoidance provision set out in VATA 1994, Schedule 10, paragraph 12 in respect of supplies they intend to make of the land or building — read section 13

The requirement for the buyer to notify the seller that their option will not be disapplied is designed to deal with avoidance schemes making use of TOGC provisions. In deciding whether their option is disapplied, the transferee needs to consider whether there are any circumstances in which the building being transferred would become for them a capital item. This could be as a result of the building being treated as part of the TOGC or alternatively as a taxable supply.

In cases where prior permission for an option is required, the application must have been made on form VAT1614H and HMRC must have granted permission before or on the relevant date — read section 5.

Where land and buildings form part of a TOGC the transfer is treated as neither a supply of goods nor a supply of services for VAT purposes and VAT should not be charged.

11.2.1 What HMRC means by ‘notified’

By ‘notified to HMRC’ we mean that the buyer has properly addressed, pre-paid and posted the appropriate form or letter to us (or faxed it to us). The declaration that the option will not be disapplied must also be made by the relevant date.

11.2.2 The ‘relevant date’

The relevant date is the time that the supply would be treated as taking place, if it were not for the special TOGC rules. This is normally the date of the transfer, but will also include receipt of a deposit if that is paid in advance of the date of the transfer (unless the deposit is paid to an independent stakeholder). Further information on time of supply can be found in section 10.

11.3 Transfers that are treated as a TOGC where they’re otherwise exempt or zero-rated

There’s no requirement for the buyer or transferee to opt to tax or notify the seller that their option is not disapplied where the sale would, apart from the TOGC provisions, be an exempt or zero-rated supply. In such instances the transfer of the land and buildings can be included in a TOGC regardless of whether the transferee has opted.

11.4 If the conditions for a TOGC are not met

The conditions for a TOGC will not have been met in respect of the land or buildings if you’re transferring:

• the freehold of land or buildings which are new (less than 3 years old) or unfinished buildings or civil engineering work which would normally be standard-rated
• land or buildings on which you have opted to tax and the option is not disapplied and the buyer has either not:
  • opted to tax the property
  • notified you that the option to tax will not be disapplied

You will have to charge VAT on the sale of the land or building.

This table will help you to decide whether the conditions for a TOGC have been met:

Commercial land or building, ordinarily exempt
Has the seller opted to tax (building over 3 years old)?	Has the buyer opted to tax?	Will the buyer’s option to tax be disapplied?	TOGC provisions met?
Yes	Yes	Yes	No
Yes	No	N/A	No
Yes	Yes	No	Yes
No	No	N/A	Yes
No	Yes	Yes	Yes
No	Yes	No	Yes
Yes, but option disapplied	No	N/A	Yes

New building (less than 3 years old), ordinarily standard-rated
Has the seller opted to tax?	Has the buyer opted to tax?	Will the buyer’s option to tax be disapplied?	TOGC provisions met?
Yes	Yes	Yes	No
Yes	No	N/A	No
Yes	Yes	No	Yes
No	No	N/A	No
No	Yes	Yes	No
No	Yes	No	Yes

11.5 Input tax you incur on transfer expenses

VAT incurred in making or receiving a TOGC is input tax. As with all input tax, it’s recoverable to the extent that it will be used in making taxed supplies. The way you treat this input tax in practice will depend on whether you are the transferor (the person disposing of the business), or the transferee (the person acquiring the business).

11.5.1 Transferor

As a transferor of a going concern, the transfer of assets is neither a supply of goods nor a supply of services for VAT purposes — read Transfer a business as a going concern (VAT Notice 700/9)). Costs incurred therefore cannot be related to the sale and are general costs of the business (that is, overheads).

But input tax on costs that relate wholly to the transfer of the business (for example, legal fees) should be treated as an overhead of the specific property business being transferred rather than the whole VAT registration. Where that property business makes:

• only taxable supplies, the input tax is fully recoverable
• only exempt supplies, the input tax is wholly non-recoverable
• both taxable and exempt supplies, the input tax is residual and recoverable in accordance with the partial exemption method in place

If you’re partly exempt and your partial exemption method fails to achieve a fair and reasonable result, you may wish to discuss this with HMRC. In exceptional cases, where significant distortion and unfairness would otherwise arise, we may approve an alternative way of calculating recoverable input tax on the TOGC.

11.5.2 Transferee

If you’re the transferee of a going concern and acquire assets for your business, the input tax on costs that relate wholly to the acquisition of those assets will be recoverable to the extent to which they will be used in making taxable supplies. Therefore, where they are to be used in making:

• only taxable supplies, the input tax is fully recoverable
• only exempt supplies, the input tax is wholly non-recoverable
• both taxable and exempt supplies, the input tax is residual and recoverable in accordance with the partial exemption method in place

This guidance can only be applied to acquisitions of businesses by way of a transfer of a going concern. Any VAT incurred on costs related to any other form of acquisition, such as the acquisition of a controlling share interest in a business, should be considered under normal principles. If it’s incurred for an economic purpose then it will be input tax - whether you can recover it will depend on what supplies you’ve made (or will make).

11.5.3 Business acquired by a VAT group

If you acquire a business or its assets as a going concern and you are a member of a VAT group registration that is partly exempt, or becomes partly exempt during the tax year in which the transfer takes place, your VAT group may have to account for VAT on certain assets as a supply both to and by the group. Transfer a business as a going concern (VAT Notice 700/9) gives full details.

11.6 If the land or buildings are in the Capital Goods Scheme or have unused costs attaching to them

Where assets are transferred without a supply occurring, any input tax rights and obligations go with them to the new owner. This means that the new owner may need to make Capital Goods Scheme adjustments (read Capital Goods Scheme (VAT Notice 706/2)) or payback or clawback adjustments (read Partial exemption (VAT Notice 706)) that may fall due.

11.6.1 Capital Goods Scheme

If you’re transferring land or buildings as part of a TOGC which are capital items for the purposes of the Capital Goods Scheme, you should make the buyer aware of any Capital Goods Scheme adjustments you have made and provide sufficient information to allow the buyer to carry out any future adjustments under the scheme that might be necessary.

If you have acquired land or buildings that are capital items, you’re responsible for continuing the Capital Goods Scheme, and making any further adjustments of input tax required under the scheme, until the intervals are complete.

11.6.2 Payback or clawback adjustments

You should make the buyer aware if you’re transferring land or buildings as part of a TOGC and:

• you have incurred input tax on or related to the land or buildings
• the input tax has been attributed to taxable, exempt or mixed use based on an intention which has not been fulfilled as of the time of transfer

You should also provide the buyer with sufficient information to allow them to carry out any future payback or clawback adjustments that might become necessary if they use the costs in making supplies differently to the intention you formed prior to the transfer.

If you have acquired land or buildings with unused costs attaching to them, you’re responsible for monitoring whether you use the costs differently to the transferee’s original intention and making any adjustments of input tax that may be required.

12. Cancel your VAT registration

12.1 What happens to your option to tax if you cancel your VAT registration

Your option to tax is not cancelled if you cancel your VAT registration. If, for example, you let an opted property, and cancelled the VAT registration due to a fall in turnover, and then at a later date your rental income in relation to that property increases above the VAT threshold, the option to tax will still have effect and you must apply to register again.

You might cancel your VAT registration because you’re selling your business as a TOGC. If that is the case, and you’re disposing of land or buildings that are capital items for the purposes of the Capital Goods Scheme as part of the transfer, you should inform the buyer of any adjustments you have made under the scheme.

If the opted land or building is an asset on hand at cancellation of your VAT registration you may have to account for output tax in respect of it. For more information, read Cancelling your VAT registration (VAT Notice 700/11).

13. Anti-avoidance measures

13.1 Why the anti-avoidance measures are needed

Some businesses whose supplies are wholly or partly exempt are not entitled to recover all of the input tax they incur on the purchase of land or buildings, or on major construction projects. As a result, some of these organisations entered into arrangements designed to either increase the amount of input tax they could claim, or to spread the VAT cost of the purchase or construction over a number of years.

To counter this, an anti-avoidance test was introduced. The test is applied each time a grant is made and if caught, the option to tax will not have effect (it will be ‘disapplied’) in respect of the supplies that arise from that particular grant.

The anti-avoidance test may also impact on the VAT treatment of a TOGC of a property — read section 11.

If you grant an interest in a building or land and the person that is to be in occupation makes predominantly taxable supplies and is able to receive credit for the majority of input tax they incur, you’re unlikely to be affected by the anti-avoidance measure. Your option to tax may be disapplied if any of the following situations arise (these are examples only), you:

• are a partly exempt business and grant a lease in a building that you intend to occupy at a later date
• are a partly exempt business and enter into a sale and leaseback of a property that you occupy
• construct a building and finance is provided by a bank that also intends to be in occupation
• buy a building and finance is provided by a bank that also intends to be in occupation

Where your supplies of property become exempt supplies due to the disapplication of your option to tax, this may mean that you cannot recover input tax, or that you have to repay input tax that you have previously recovered.

13.2 The test

The test is as follows:

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 — read paragraph 13.3.3.

2. It’s the intention or expectation of the grantor or the person treated as the grantor, read 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 connected with them.

3. The person occupying the property will be doing so other than wholly or substantially wholly for eligible purposes — read paragraph 13.9.

Then the option to tax will not have effect in respect of supplies that arise from that particular grant.

The next paragraphs will explain what the test means and how it is to be applied to each grant.

13.3 Grants and supplies

13.3.1 A grant and who the grantor is

The word ‘grant’ refers to the act that transfers the interest in, or possession of, the land or building. Examples are a freehold sale of land or a building, the leasing or licensing of land or a building, or the assignment or surrender of that lease or licence.

The grantor is the person who sells, leases, licences or lets any of the land or buildings and can be anywhere in the ‘chain’ of people who have an interest in the land or buildings concerned.

For example, a freeholder (A) may sell land to another party (B) who constructs a new commercial building and then leases it to another business (C), who will occupy the building for its own use. In this case there are 2 grantors, (A) and (B). It follows that if (C) goes on to sub-let part of the building to another business, there would then be 3 grantors. The test should be applied to each grant made.

13.3.2 Supplies arising from a grant

In the case of a freehold sale there is normally a single supply at the time of completion. For leases, it is usual for there to be a succession of supplies following the grant. These are treated as made when you either issue an invoice or receive payment (the earlier of the 2). Payment would also include any non-monetary consideration.

13.3.3 If you make supplies under a grant that was originally made by another person

If you make a supply under a grant that was originally made by another person then, for the purposes of part 1 of the test in paragraph 13.2, you’re treated as if you had made the grant. The grant is treated as made on the date of your first supply of the land.

Where, for the purposes of the test, you’re treated as the person who made the grant, you will need to determine whether you satisfy the other elements of the anti-avoidance test. But in such circumstances the test is still satisfied (and your option disapplied) where your grant is treated as made after the expiry of your Capital Goods Scheme adjustment period.

For example, where there’s an intention that the building will be occupied by someone connected with you and will not be used for eligible purposes, then even if your first supply (read paragraph 13.3.2) occurs after the building has ceased to be a capital item for the Capital Goods Scheme, your option to tax will still be disapplied. This overcomes an avoidance scheme that involved deferring the supplies made under the grant until the land is no longer a capital item.

13.4 How HMRC establishes a person’s intention or expectation

The option to tax has no effect in relation to the supplies arising from the grant if either the grantor, or the person responsible for financing the grantor’s acquisition or development of that particular property, knows or expects at the time the grant is made that either one of them, or any party connected with them, will occupy it for other than eligible purposes — read paragraph 13.9. There does not have to be an intention to avoid VAT for the grant to be caught by the test.

We will consider commercial documents and other evidence such as minutes of meetings, business plans and finance requests to establish the intention and expectation of the businesses that are involved in the particular development or transaction.

13.5 What’s meant by finance

For the purpose of the anti-avoidance measure finance means directly or indirectly:

• providing all or part of the funds for the acquisition or development
• obtaining those funds from another person
• providing the funds for discharging all or part of the owner’s borrowing for the acquisition or development
• procuring that such a liability will be discharged by another

Finance could take many different forms, such as loans, guaranteeing a loan, purchase of shares or securities which finance a development of land, share issues or premium deals.

13.6 When someone is responsible for financing an acquisition or development

For the purposes of the anti-avoidance measure, a person is only deemed to have been responsible for financing an acquisition or development if 2 important conditions are met:

a) at the time the finance is provided, or the agreement to provide the finance is entered into, the person providing the finance must intend or expect that he or the grantor, or somebody connected to either of them, will occupy the particular property for other than eligible purposes

b) the funds must be for the purpose of financing the purchase, construction or refurbishment of that property

If either of these conditions is not met, a person will not be deemed to be responsible for providing finance, even if they have provided the funds to meet part or all of the cost of the acquisition or development.

13.7 The ‘connected’ person test

13.7.1 How a person is seen to be ‘connected’ with another

The test in section 1122 of the Corporation Tax Act 2010 applies to determine whether persons are connected. The following persons are treated as connected with you:

• your husband, wife or civil partner
• your relatives and their husbands, wives or civil partners
• your husband’s, wife’s or civil partner’s relatives and their husbands, wives or civil partners
• if you’re in business in a partnership, your partners and their husbands, wives, civil partners and relatives
• a company that you control, either by yourself or with any of the persons listed in these bullet points
• the trustees of a settlement of which you are a settlor, or of which a person who is still alive and who is connected with you is a settlor

Relative means a brother, sister, ancestor or lineal descendant. It does not include nephews, nieces, uncles and aunts.

A company is connected with another company if:

• the same person has control of both, or a person has control of one and persons connected with them (or they and persons connected with them) have control of the other
• a group of 2 or more persons have control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom they are connected

13.7.2 Exceptions to the normal ‘connected persons’ rule

For the purposes of the option to tax a company is not treated as ‘connected’ to another company as a result of both being under the control of:

• the Crown
• a Minister of the Crown
• a government department
• a Northern Ireland department

13.8 What occupation means

13.8.1 When a person is in occupation of a building

A person is in occupation of a building or land if they have both:

• a physical presence
• the right to occupy the property as if they’re the owner

This means they will have actual possession and control of the land, together with the ability to exclude others from the enjoyment of such rights.

Normally a legal interest in or licence to occupy the land, will have been granted to them. But occupation could also be by agreement or in effect and it’s therefore necessary to take into account the day to day arrangements, particularly where these differ from the contractual terms. An exclusive right of occupation is not a requirement, an agreement might, for example, allow for joint occupation. It’s also not necessary for a person to be utilising all of the land for all of the time for them to be considered as occupying it.

13.8.2 When a person is not in occupation for the purposes of the test

A person is not in occupation where the interest they hold is subject to an inferior interest and they are prevented from having rights of occupation until the inferior interest expires. This can typically arise where a leaseholder has granted a sub-lease. But an important feature of the test is that it is forward looking and takes account of the intended or expected occupation of the building or land throughout the Capital Goods Scheme adjustment period. As a result, a person who has granted an inferior interest but intends to occupy the land anyway during the adjustment period, would intend to be ‘in occupation’ for the purposes of the anti-avoidance test.

13.8.3 Circumstances where you can ignore occupation

You can ignore the following types of occupation for the purposes of the test.

Occupation by a lessor which is purely for the purpose of making rental supplies under the grant, examples include occupation:

• by the grantor between the date of the grant and the start of occupation by the tenant which is for the purpose of undertaking refurbishment or repairs
• by maintenance, security, reception staff or similar, but not where it is for the purpose of providing ongoing services separate from the letting itself
• at a future date, but within the Capital Goods Scheme adjustment period, which is solely for the purpose of re-letting the property or making a fresh grant

13.8.4 The 10% occupation rule

Occupation of any part of the land or building (even a very small proportion) normally counts as occupation for the purposes of the anti-avoidance test. But in respect of grants made on or after 1 April 2010, a person is not treated as being in occupation for the purposes of the test where the conditions of the ‘10% occupation rule’ are met. The rule prevents disapplication of an option where the occupation is by a development financier, read paragraph 13.6, or a person connected to a development financier (except where such persons are connected to the grantor), and the part to be occupied is only a small proportion of any building included in the grant.

Following the introduction of the ‘10% occupation rule’ a person who would otherwise be ‘in occupation’ for the purposes of the anti-avoidance test is treated as not occupying any part of the land if they satisfy a number of conditions.

13.8.5 How the 10% occupation rule is applied

The rule works as follows:

• the persons in occupation must not be the grantor or a person connected to the grantor
• there must be no intention or expectation at the time of the grant that the persons will occupy more than 10% of any building (or part of a building) included in the grant at any time during the grantor’s Capital Goods Scheme adjustment period - where the financier is in occupation together with persons connected to him, or alternatively, the occupation is by a number of persons connected to the financier, it is the combined occupation that counts towards the 10% threshold
• the proportion of the building occupied is to be calculated in relation to the whole of the single building or where the grantor holds an interest in only part of the building, that part in which an interest is held immediately prior to the grant being made (this includes any part of the building in which an interest is held by a persons connected to the grantor)
• where a number of buildings are included in the same grant the rule is applied to each building on an individual basis, where the 10% threshold is exceeded in relation to any of the buildings the conditions are not satisfied
• for the purposes of the rule a single building takes its meaning from VAT Act 1994 Schedule 10 sub-paragraphs 18(4) to (7) and includes some linked buildings and enclosed complexes — read paragraph 2.6
• the conditions are not satisfied where the persons occupies any land included in the grant which is not a building, but the occupation of land that falls within the curtilage of the building or is used for parking vehicles can be disregarded as long as such occupation is ancillary to that of the building

13.8.6 How to calculate the proportion of the building occupied by a person for the purposes of the 10% occupation rule

For the purposes of calculating the percentage of the building occupied by a particular person the practices set out in the Royal Institution of Chartered Surveyors (RICS) ‘Code of Measuring Practice’ are to be used. Section H sets out detailed rules about how the code is to be applied. For example, the calculation must exclude any areas that are not available for exclusive occupation, such as (in most cases) walkways, stairwells and foyers. In addition, parts of buildings used for vehicle parking and parts which form the curtilage of the building are also excluded.

In most instances it will be clearly obvious that a tenant will be occupying less than 10% of a building. Where this is the case and HMRC have no reasons for believing that the 10% threshold will be exceeded at any time during the Capital Goods Scheme adjustment period, taxpayers will not be required to produce evidence of their RICS calculation. But taxpayers should retain appropriate details with their VAT records about any parts of buildings to be occupied by development financiers (or persons connected to development financiers). In rare cases where the area occupied is close to 10% (plus or minus 5%) HMRC may ask for evidence of RICS calculations.

The ‘10% occupation rule’ is based on the intention or expectation of the grantor and development financier at the time the grant is made and involves a forward look over the 10-year period of the Capital Goods Scheme. The test is a one-off test and where further occupation arises which was not intended or expected at the time of the original grant (and results in the 10% threshold being exceeded) the test is not reapplied to the original grant. But in such cases (assuming other parts of the anti-avoidance test are met), the option will be disapplied in relation to the second and subsequent grants.

Section H

This section has force of law.

Calculating the proportion of a ‘relevant building’ occupied by a development financier or person connected to a development financier (for the purposes of paragraph 15A(1)(b)(ii) of Schedule 10 to the Value Added Tax Act 1994).

The proportion of a ‘relevant building’ occupied by any person or persons for the purposes of paragraph 15A(1)(b)(ii) of Schedule 10 to the Value Added Tax Act 1994 is to be calculated using the recommended practices set out in the current version of the ‘Code of Measuring Practice’ published by the Royal Institution of Chartered Surveyors (the ‘RICS Code’), but subject to the following:

1. Parts of the building that must be excluded include any part:

• which is not available for exclusive occupation
• intended primarily for use for vehicle parking
• which is land forming part of the curtilage of the building

1. Where (in relation to any part of the ‘relevant building’) the RICS Code either:

• does not specify a ‘core definition’
• specifies the use of more than one ‘core definition’

the ‘core definition’ to be used is that applied or expected to be applied by the grantor for the purposes of calculating rent due from letting that part of the building or, if there is no such definition at the time of the grant, NIA (Net Internal Area).

Explanatory Note 1

Current version of the ‘Code of Measuring Practice’ means the latest published version at the time the grant is made (ie, the grant that is subject to the anti-avoidance test).

13.8.7 The 2% occupation rule

As from 1 March 2011 a grantor in occupation of no more than 2% of a building is treated as not being in occupation of a building for the purposes of the anti-avoidance provision. This addresses the situation where the grantor (or a person connected to the grantor) was to be in occupation of a very small part of a building, such as a cleaner’s cupboard. Where the grantor occupies no more than 2% of any building subject to the grant they’re also treated as not in occupation. For the avoidance of doubt the 2% rule only applies to occupation by a grantor or person connected with the grantor.

13.8.8 How the 2% occupation rule is applied

Occupation of any part of a building by the grantor (even a very small proportion) normally counts as occupation for the purposes of the anti-avoidance test and can result in the option to tax being disapplied. From 1 March 2011 all supplies arising from grants made on or after that date will be subject to the new ‘2% occupation rule’. Under the change a grantor is not treated as in occupation where the conditions of the ‘2% occupation rule’ are met (the conditions largely mirror those of the existing 10% rule). The rule works as follows:

• there must be no intention or expectation at the time of the grant that the grantor or a person connected with the grantor will occupy more than 2% of any building (part or all of which is included in the grant) at any time during the grantor’s Capital Goods Scheme (CGS) adjustment period, where the grantor is in occupation together with a person connected to them, it’s the combined occupation that counts towards the 2% threshold, unless the occupation by either person meets the eligible purposes test in Schedule 10, paragraph 16
• the proportion of the building occupied is to be calculated in relation to the whole of the single building (not just that part that’s subject to the grant) or, where the grantor holds an interest in only part of the building, that part in which an interest is held immediately prior to the grant being made (this includes any part of the building in which an interest is held by a persons connected to the grantor
• where a number of buildings are included in the same grant, the rule is applied to each building on an individual basis, where the 2% threshold is exceeded in relation to any of the buildings, the conditions of the rule are not met
• for the purpose of the rule a single building takes its meaning from VATA 1994 Schedule 10, sub-paragraphs 18(4) to (7)
• the rule is not satisfied where the persons occupy any land included in the grant which is not a building, but occupation of land that falls within the curtilage of the building or is used for parking vehicles can be disregarded as long as such occupation is ancillary to the occupation of the building
• for the purposes of calculating the percentage of the building occupied by a particular person the practices set out in the RICS ‘Code of Measuring Practice’ are to be used, section 13 contains tertiary legislation setting out detailed rules about how the code is to be applied and further details about the method of calculation are given in paragraph 13.8.6 of this notice (as with the 10% rule, HMRC only require evidence of the calculation in cases where the area occupied is close to 2% (between 0 and 7%))
• like the 10% occupation rule, the rule is based on the intention or expectation of the grantor at the time the grant is made and involves a forward look over the 10 year period of the CGS, where it’s known at the time of the grant that further grants will be made, the calculation must take account of the occupation that will result from those grants (the test is a one-off test at the time of the grant)

13.9 When occupation is ‘wholly’ or ‘substantially wholly’ for eligible purposes

13.9.1 Wholly or substantially wholly

The anti-avoidance measure examines whether the grantor or the person responsible for providing finance intends that the development will be occupied other than ‘wholly’ or ‘substantially wholly’ for eligible purposes.

The terms ‘wholly’ or ‘substantially wholly’ are defined in Section I.

Section I

This section has force of law.

Meaning of ‘wholly’ and ‘substantially wholly’ for eligible purposes (for the purpose of paragraph 15(5) of Schedule 10 to the Value Added Tax Act 1994):

Expression	Meaning
Occupation ‘wholly’ for eligible purposes.	Land occupied 100% for eligible purposes.
Occupation ‘substantially wholly’ for eligible purposes.	Land occupied at least 80% for eligible purposes.

13.9.2 Eligible purposes

For someone to be in occupation of the property for eligible purposes they must be occupying it for the purpose of making taxable supplies, or for other activities which entitle them to credit for their input tax.

Some organisations are always treated as occupying a development for eligible purposes and these include National Health Service Trusts and government departments. Occupation by local authorities or other bodies, such as police and fire authorities, are treated as eligible provided the occupation is for taxable or non-business purposes.

Occupation that arises only because of an automatic teller machine fixed to the land is treated as being for eligible purposes.

The following are examples of businesses and organisations that may occupy a property for other than eligible purposes:

• businesses, such as insurance companies and banks, making exempt supplies
• someone who is not, and is not required to be VAT registered

Organisations, such as charities, who undertake non-business activities, would not generally be in occupation for eligible purposes.

13.10 Land or buildings covered by the Capital Goods Scheme

The anti-avoidance measure only applies to land and buildings that are, or are intended to become, capital items for the purpose of the Capital Goods Scheme, either in the hands of the grantor or a person to whom the property is to be transferred. Generally, a capital item comes within the scheme when it is either bought, or first used.

The Capital Goods Scheme will normally apply if you incur VAT on the purchase of the property, or on capital works, where VAT bearing costs, net of VAT, are £250,000 or more. But it will not apply where you have bought property purely for the purpose of selling it on. You will find more information about capital items and how the scheme works in Capital Goods Scheme (VAT Notice 706/2).

14. Real Estate Election (REE)

14.1 Who should read this section

This section only applies if you:

• intend to acquire a large number of properties and wish to opt to tax all of them
• have made a ‘global’ option to tax in the past — read paragraph 14.13

14.2 Note about terminology used in this section

For the purpose of this section:

• ‘property acquisition’ means the acquisition of any interest in, right over, or licence to occupy land (including buildings and civil engineering works)
• ‘interest’ means any interest in, right over or licence to occupy land (including buildings and civil engineering works)

14.3 The definition of a ‘REE’

A REE is a formal decision to opt to tax all future property acquisitions.

If you make a REE, you will be treated as if you have made an option to tax in relation to every property in which you subsequently acquire an interest. There are some exceptions, which are explained in paragraph 14.7.

Each property you acquire will be treated as separately opted, with effect from the time of acquisition — read paragraph 14.5. Each of these options is capable of being separately revoked if the conditions for revocation are met. For example, if you acquire a property that you do not want to be opted, you may be able to revoke within 6 months of acquisition under the ‘cooling off’ provisions, read paragraph 8.1, but only if the relevant conditions are met.

For a REE to have legal effect, you need to notify the REE itself to HMRC (paragraph 14.9 explains how to do this), but once you have made a REE, there is no need for you to notify HMRC of an option to tax each time you acquire an interest in a property. You will need to keep records and provide us with certain information if we request it, — read paragraph 14.12.

14.4 Why REEs were introduced

Some businesses with very large numbers of properties wish to opt to tax all (or nearly all) properties within their portfolios without having the administrative burden of having to notify HMRC of an individual option to tax each time they make a new acquisition. In the past, the only way to achieve this was to make a ‘global’ option to tax. The REE was introduced as an alternative to the global option. It is designed to provide some of the advantages of a global option whilst providing greater flexibility. Information about global options is in paragraph 14.13.

14.5 When an option to tax under a REE takes effect

Once you have made a REE, each property you subsequently acquire (subject to the exceptions in paragraph 14.7) will be treated as opted to tax with effect from the start of the day you acquire it.

For this purpose, you will be treated as acquiring the property at the time that the supply to you, for VAT purposes, is treated as made, or if there is more than one such time, the earliest of them. For further information about time of supply, read section 10.

If you acquire a property as part of a VAT-free TOGC, read section 11, your option will have effect from the time that the supply to you would have been treated as made (or if there is more than one such time, the earliest of them) if the special TOGC rules had not applied.

14.6 Opting to tax a property in which you do not hold an interest

If, after making a REE, you wish to opt to tax a property before you acquire an interest in it, you may do so by making a separately notified option to tax under the normal rules —read section 4.

14.7 Acquisitions excluded from the effect of a REE

The REE will not generate an option to tax for the following types of acquisitions:

Any acquisition of a property in respect of which you have already exercised an option to tax

If you acquire an interest in a property and you have (or a body corporate that was in your VAT group at the time, has) previously opted to tax the building or land, under the normal rules, with effect from a date prior to the acquisition date, the REE will have no effect in relation to that property.

Any acquisition of a property in respect of which you already hold an interest when acquiring another different interest

If the person who acquires an interest after the REE is made already held a different interest in the property before the REE was made and continues to hold that interest when acquiring the further, different interest, the REE will not generate an option to tax. This situation can typically arise where a leasehold interest is held prior to the purchase of the freehold. Alternatively, an interest in part of a building (for example, one floor) may be held at the time an interest in another part of the same building is acquired.

Any acquisition of a property for which permission to opt might ordinarily be required

The REE will not generate an option to tax for an acquisition if you have made exempt supplies of the property within the 10 years prior to the date of acquisition.

14.8 What happens to options to tax you made before making the REE

14.8.1 Automatic revocation where no interest held

Any options to tax exercised by you (or by a person within your VAT group at the time) before making a REE will generally be revoked automatically when you make a REE if you do not hold an interest in the opted land or building at that time (and no one within your VAT group holds an interest). There are exceptions to this rule, which are explained in paragraph 14.8.2.

If	and	then
You previously opted to tax a building (or part of a building)	you do not have a relevant interest in the building at the time you make a REE	your option is revoked (subject to paragraph 14.8.2)
You previously opted to tax land (without reference to a particular building or buildings)	you do not have a relevant interest in the land at the time you make a REE	your option is revoked (subject to paragraph 14.8.2)
You previously opted to tax land (without reference to a particular building or buildings)	you only have an interest in part of the land at the time you make a REE	your option is revoked in relation to the parts of land in which you do not hold a relevant interest (subject to paragraph 14.8.2)

14.8.2 Exceptions to automatic revocation

Automatic revocation of an option will not occur at the time a REE is made in any of the following circumstances. All references to ‘relevant time’ mean the time the REE is made or, in other words, the time the option would otherwise be revoked:

Option	Description
1.	Where the opter has sold the property on terms that may require the buyer to make additional payment after the ‘relevant time’. Such payments are often referred to as ’overages’ and can be contingent on such things as the buyer obtaining planning permission.
	The following 2 circumstances can only apply if the person who opted to tax (the opter) is or has been a member of a VAT group.
2.	Where a ‘relevant associate’ of the opter in relation to the opted property, read paragraph 6.3 has sold the property on terms that may require the buyer to make additional payment after the relevant time (read 1.)
3.	Where before the relevant time a relevant associate of the opter in relation to the property left the opter’s VAT group and at the time of leaving any of the following applied: a. the relevant associate had an interest in or licence to occupy the property b. the relevant associate had, prior to leaving the VAT group, disposed of an interest on terms that might have required the buyer to make additional payment at a later date (read 1.) c. the relevant associate was connected to the opter or another relevant associate of the opter and that person had an interest in or licence to occupy the property

14.8.3 Conversion of single option (for example, a ‘global’ option) into separate options

If, before you made a REE, you made a single option to tax in respect of land (without specifying a particular building or buildings) and that land is capable of being divided into separate parcels, you may convert the single option into separate options in respect of each of those parcels. This choice is only available in relation to land in which you have a relevant interest at the time you make the REE. Each parcel of land that is to be treated as being separately opted must meet the conditions set out in section J.

Section J

This section has force of law.

Conversion of an option to tax land exercised before a real estate election into separate options to tax land in which a relevant interest is held at the time when the real estate election is made (for the purpose of paragraph 22(6) of Schedule 10 to the Value Added Tax Act 1994).

A person making a real estate election may treat an option to tax made before the real estate election is made as though there were separate options to tax of individual parcels of that land. Each parcel of land that is to be treated as being separately opted must:

1. be identified by at least one of the following - its postal address, land registry title number, map or plan or other description, and
2. meet the conditions relating to the scope of an option contained in paragraph 18 of Schedule 10 to the VAT Act 1994.

Further notes about section J

If you choose to convert a single option into separate options, you should clearly identify the separate parcels of land when you notify your REE — read paragraph 14.9.

For the purpose of revocation, the new options are treated as having effect from the time that the original option had effect. These options cannot be revoked under the 6 month ‘cooling off’ revocation.

If you’re in a VAT group when you make a REE and you choose to convert a single option into separate options, you (that is, the person that has made the REE) will be treated as the opter for these new separate options, regardless of which VAT group member made the original option. For the purpose of revocation, the new separate options are treated as having effect from the time that the original option had effect. But for the purpose of the ‘relevant associate’ rules, read paragraph 6.3, they are treated as having effect from the date that the REE is made.

14.9 How to notify HMRC about a REE

If you make a REE, you must notify it to HMRC within 30 days of having made it, or such longer period as we may allow.

The next sentence has force of law.

Notification of a real estate election (for the purpose of paragraphs 21 and 22 of Schedule 10 to the Value Added Tax Act 1994) must be made on form VAT1614E and must contain the information requested on that form.

You must provide a list, with your notification, of properties in which you hold an interest at the time of making the REE (except for dwellings). If you have chosen to convert a single option into separate options, read paragraph 14.8.3, you must separately identify the separate parcels of land on this list. This list must contain the information in section K.

Section K

This section has force of law.

Information to be provided with a notification of a real estate election by a person holding one or more relevant interests in land or buildings (for the purpose of paragraph 21(7) of Schedule 10 to the Value Added Tax Act 1994 (‘the VAT Act 1994’)).

The notification of a real estate election must contain the required information in relation to any land or buildings (other than buildings designed or adapted for use as a dwelling or a number of dwellings) in which the person making a real estate election holds a relevant interest at the time the REE is made.

The required information must be provided by way of a list specifying the following in respect of each property (other than dwellings or buildings designed or adapted for use as a dwelling) in which the person holds a relevant interest:

Number	Condition
1.	a description of the land or buildings, identified by reference to postal address, land registry title number, map, plan or other description
2.	in the case of land or buildings in respect of which no option to tax made by the maker of a real estate election has effect, the date of acquisition of a relevant interest in that land or buildings
3.	in the case of land or buildings in respect of which an option to tax made by the maker of a real estate election has effect, the date when the relevant interest in the land or building was first acquired or, if later, the date when the option first had effect
4.	where an option has effect in relation to 2 or more separately listed parcels of land or buildings, they must be identified as being subject to the same option.

Explanatory Note 1

‘Relevant interest’ has the same meaning as in paragraph 21(12) of Schedule 10 to the VAT Act 1994.

Explanatory Note 2

If the person making a real estate election has more than one relevant interest in a parcel of land or a building that were acquired at different times, only the date of acquisition of the most recently acquired relevant interest is to be provided.

Explanatory Note 3

If the person making a real estate election is required to provide the date when an option first had effect in relation to a parcel of land or a buildings and that date is unknown, that person should record that fact and enter an approximate date, using that person’s best judgement, and provide a written explanation of why that date is considered reasonable.

14.10 If you have no record of the date an option to tax first had effect

If you make a REE and do not have a record of the date when an option first had effect in relation to land or building, explanatory note 3 to section K allows you to provide an approximate date, using your best judgment. You also have to provide an explanation of why you consider that date is reasonable. HMRC will normally accept lists with such dates without further enquiry, but reserve the right to review them either as part of our general assurance and tax maintenance work, or as a result of a specific event (for example, notification of the revocation of an option to tax).

14.11 Incomplete or incorrect lists

If you submit an incomplete list or one which contains incorrect information, you should submit a revised and current updated list to your Client Relationship Manager or, if you do not have one, to the Option to Tax Unit, as soon as you identify the error.

14.12 Information you must provide after a real estate election has been made

If you have made a REE, HMRC may, at any time, require you to provide within 30 days (or such longer period as we may allow) a list of all properties and parcels of land you hold at that time, together with details of all acquisitions, disposals and conversions to dwellings made since you last provided a list. In such a case, you have to provide the information set out in section L.

Section L

This section has force of law.

Information to be provided by the maker of a real estate election when required to do so by the Commissioners (under paragraph 21(8) of Schedule 10 to the Value Added Tax Act 1994 (‘the VAT Act 1994’)).

When required to do so, the maker of a real estate election must provide to the Commissioners the following information in relation to any land or buildings (other than buildings designed or adapted for use as a dwelling) in which that person or a relevant group member:

holds a relevant interest at the time of providing the required information, or has ceased to hold a relevant interest since making a real estate election or, if later, since the last occasion on which the maker of the real estate election provided such information to the Commissioners.

The information set out in part A of this section is to be provided in respect of every such property; the information set out in part B is to be provided in respect of every such property in which a relevant interest has been acquired or disposed of by the maker of the real estate election or a relevant group member since the date of the last such list, if any.

Part A

In respect of any land or building in which the maker of a real estate election or a relevant group member holds a relevant interest or has ceased to hold such an interest as described in the previous pragaraph, the following information must be provided by way of a list specifying:

Number	Condition
1.	the description of the land or buildings identified by reference to its postal address, land registry title number, map, plan or other description
2.	in the case of land or buildings in respect of which no option to tax made by the maker of a real estate election or relevant group member has effect, the date of acquisition of the relevant interest in the land or buildings
3.	in the case of land or buildings in respect of which an option to tax made by the maker of a real estate election or a relevant group member has effect, the date when the relevant interest in the land or building was acquired or, if later, the date when the option first had effect
4.	where an option has effect in relation to 2 or more separately listed parcels of land or buildings, they must be identified as being subject to the same option

Part B

The following information must be provided in respect of every property in which a relevant interest has been acquired or disposed of by the maker or the real estate election or a relevant group member since the date of the last such list, if any, by way of a list specifying:

Number	Condition
1.	As appropriate, the date of the maker of the real estate election or a relevant group member: acquiring a relevant interest in land or buildings in which that person has no other relevant interest ceasing to hold a relevant interest in land or buildings without retaining another relevant interest in that property opting to tax land or buildings otherwise than by virtue of a real estate election converting a building or buildings into a dwelling or dwellings excluding a new building from the effect of an option, and revoking an option to tax in relation to land or buildings. identifying the land or building to which each occurrence relates.
2.	The VAT-exclusive value of the supply of a relevant interest acquired or disposed of by the maker of a real estate election or relevant group member.
3.	The VAT (if any) charged on the supply of a relevant interest by the maker of a real estate election or, where the supply occurred before its admission to the group, the relevant group member.

Explanatory Note 1

‘Relevant interest’ and ‘relevant group member’ have the same meanings as they do in paragraph 21(12) of Schedule 10 to the VAT Act 1994.

Explanatory Note 2

Where the maker of a real estate election or relevant group member has more than one relevant interest in the same land or building that were acquired at different times, only the date of acquisition of the most recently acquired relevant interest is to be provided.

Explanatory Note 3

In the case of land or a building in which an interest has been held before the date of a real estate election, the date of the occurrence of the making of an option to tax by the person making a real estate election or a relevant group member is the date when that option first has effect.

Explanatory Note 4

The date of the occurrence of the revocation of an option is the date from which the revocation has effect.

Explanatory Note 5

The requirement to provide the information set out in Parts A and B does not apply to the revocation of an option to tax by virtue of paragraph 23 (‘the cooling off’ period) or paragraph 24 (lapse of 6 years since having a relevant interest) of Schedule 10 to the VAT Act 1994.

14.13 About global options to tax and REEs

14.13.1 A ‘global’ option to tax

A ‘global’ option is a single option to tax which covers a large number of properties, such as ‘the whole of the UK’ or ‘all current property holdings and all future acquisitions’.

14.13.2 The disadvantages of a global option

A global option is a single option to tax and therefore cannot be revoked on a property by property basis. A global option can only be revoked as a whole, and only if the relevant conditions are met for each property covered by the global option. Global options have caused particular problems for VAT groups, due to the relevant associate rules explained in paragraph 6.3.

14.13.3 A global option instead of a REE

You may still opt to tax a large area, such as the whole of the UK, if you wish to. But you should be aware of the possible disadvantages described in paragraph 14.13.2. You can no longer exercise a global option in respect of ‘all current property holdings and future acquisitions’.

14.13.4 Converting a global option into a REE

If you have made a ‘global’ option to tax in the past, you can, if you wish, make a REE. This will have the following implications for your existing global option:

• the global option will generally be revoked in respect of any land in which you do not hold a relevant interest when you make the REE — read paragraph 14.8.1
• you can, if you wish, convert the remainder of the global option into separately opted parcels of land when you make a REE, read paragraph 14.8.3, each separate option will then be capable of being individually revoked, if the conditions for revocation are met

14.14 How REEs are treated in VAT groups

14.14.1 Members of a VAT group that can make a REE

Any member of a VAT group can make a REE. HMRC expects that this will normally be done by the representative member of the VAT group.

14.14.2 The effect of a REE on properties acquired by other VAT group members

If you’re in a VAT group when you make a REE, or if you join one after you have made a REE, your REE will affect acquisitions of any members of your group, in addition to affecting your own acquisitions.

This means that where a body corporate in the same group as you acquires an interest in a property, you will be treated as having opted to tax that property at the time the interest is acquired (except for the circumstances described in paragraph 14.7).

You will be treated as the opter in these circumstances and the body corporate which has acquired the interest will be a ‘relevant associate’ of you — read paragraph 6.3.

If a body corporate ceases to be a member of the same VAT group as you, any acquisitions it makes after ceasing to be a member of your VAT group will not be affected by the REE.

14.14.3 How the REE effects an option to tax made by you (or by a body corporate within your VAT group at that time) before you made the REE

If neither you nor any member of your VAT group holds an interest in the relevant opted property at the time of making the REE (or only holds an interest in part of it), the option might be automatically revoked (or partially revoked). Read paragraphs 14.8.1 and 14.8.2 for further information.

If the option is not automatically revoked (or if only part of it is revoked), and you choose to split the option into separately opted parcels of land (read paragraph 14.8.3), then you (that is, the person that has made the REE) will be treated as the opter for the new separately opted parcels of land, regardless of who made the original option. Read paragraph 14.8.3 for further information.

For any other options to tax, the body corporate that originally made the option will remain the opter. Any further acquisitions that are made in relation to such opted property will not be affected by the REE.

14.15 Revoking a REE

Once you have made a REE, you cannot revoke it.

HMRC can withdraw a REE if you do not comply with our requests for information — read paragraph 14.13.

If we withdraw your REE, you cannot make a further REE unless you obtain our permission first. Where a subsequent REE is made, you may not convert single options into separate options. Read paragraph 14.8.3.

Annex 1

All these forms and certificates have force of law and must be used where appropriate:

• VAT1614B
  
• VAT1614C
  
• VAT1614D
  
• VAT1614E
  
• VAT1614F
  
• VAT 1614G
  
• VAT 1614H
  
• VAT 1614J

Annex 2

Read Flowchart (PDF, 23.4 KB, 3 pages).

Notes

Note 1 — ‘Opted supplies’ means supplies that will be taxable as a result of the option to tax. ‘Property’ includes land, buildings and civil engineering works.

Note 2 — The question of whether a person is connected with another person is to be decided as it would be for the purposes of Part 1 of Schedule 10 to the VAT Act 1994. Guidance on connected persons is in paragraph 13.7.

Note 3 — ‘Permissible exempt supplies’ means the following exempt supplies arising from a grant in relation to the land:

a) supplies for which the consideration solely represents legal or valuation costs reimbursed under the agreement for the grant

b) supplies where:

i. the consideration received is rent or service charges which relates to a period of occupation of the property and that period ends no later than 12 months from the date on which the option first takes effect ii. no taxable rents and service charges to be made after that 12-month period will be reduced in value as a result of the consideration payable for these exempt supplies

Note 4 — For the purposes of the requirement, ‘entitled to credit’ includes a deduction or credit arising as a result of the application of the ‘payback’ provisions or the Capital Goods Scheme. Guidance on these terms can be found in Partial exemption (VAT Notice 706) and Capital Goods Scheme (VAT Notice 706/2).

Note 5 — For the purposes of the requirement, your ‘capital expenditure’ is your expenditure on goods or services used in connection with the acquisition of, building works on, construction works on or the fitting out of, the property. Capital expenditure does not include expenditure on routine repairs and maintenance.

Note 6 — ‘Supplies conferring a credit to input tax’ are supplies listed under the VAT (Input Tax) (Specified Supplies) Order 1999 (SI 1999/3121). These include:

a) services made to a person outside the UK which are either:

i. directly linked to an export of goods to a place outside the UK ii. certain intermediary services in connection with supplies of financial services which are exempt or would be exempt if made in the UK

b) certain supplies of investment gold

Further details of these ‘specified supplies’ is available in paragraph 8.2 of Partial exemption (VAT Notice 706).

Note 7 — paragraphs 5 to 11 of Schedule 10 to the VAT Act 1994 deal with the following supplies:

a) Paragraph 5 — supplies of a building (or part of a building) designed or adapted and intended for use as a dwelling or solely for a relevant residential purpose (further information is in paragraphs 3.2 and 3.3.

b) Paragraph 6 — supplies of a building (or part of a building) not designed or adapted as a dwelling or relevant residential building but intended for use as such, for example, following conversion (further information is in paragraph 3.4)

c) Paragraph 7 — supplies of a building (or part of a building) intended solely for a relevant charitable purpose other than as an office (find more information in paragraph 3.5)

d) Paragraph 8 — supplies of pitches for residential caravans (find more information in paragraph 3.8)

e) Paragraph 9 — moorings for residential houseboats (find more information in paragraph 3.9)

f) Paragraph 10 — supplies of land to housing associations (further information is in paragraph 3.6)

g) Paragraph 11 — supplies of land to individuals for the construction of dwellings (find more information in paragraph 3.7)

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Published 16 April 2014
Last updated 8 March 2024 + show all updates

1. 8 March 2024

   Section 4 has been updated to show that HMRC no longer sends an acknowledgement letter when you notify of your option to tax. The list of authorised signatories in section 7 has been updated.

2. 6 August 2021

   Update to section '5.8 Circumstances HMRC will grant permission'. Interim letters are no longer issued as part of the process.

3. 1 August 2021

   The temporary change to the time limit for notifying an option to tax has now ended. The temporary change to allow options to tax to be signed electronically has now been made permanent.

4. 7 July 2021

   The notice has been updated at section 9.4 'VAT incurred prior to your registration'.

5. 31 December 2020

   This page has been updated because the Brexit transition period has ended.

6. 28 May 2020

   The Community Benefit Society (BenCom) in paragraph 7.6, has been updated with information about who is an authorised signatory for the purposes of notifying an option to tax.

7. 14 May 2020

   We have made temporary changes to the time limit and to how you notify an option to help businesses during coronavirus (COVID-19). The changes apply to decisions made between 15 February and 31 May 2020.

8. 15 April 2020

   Contact details for HMRC have been updated in section 4.2.3.

9. 2 March 2020

   The postal address at section 4.2.3 has been updated.

10. 16 May 2019

    The list of authorised signatories in section 7, paragraph 7.6 Authorised persons for particular legal entities, has been updated to include corporate bodies, overseas entities and power of attorneys.

11. 30 November 2018

    This notice has been updated to provide information on who is an authorised signatory for the purposes of notifying an option to tax, the details can be found in a new paragraph 7.6. The wording of paragraphs 4.2.1, 4.2.2, 7.1 and 7.5 have been amended to refer to paragraph 7.6.

12. 16 April 2014

    First published.