Option to Tax your Property

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Option to Tax your Property

The sale of land or building tax is generally exempt from standard rate VAT however, on occasions it might be more feasible to elect to charge standard rate VAT. In this blog I will aim to shed some light on when it is feasible to do so and when it is not. 

If the land and property transaction is exempt from VAT then the seller will not be able to recover VAT on any costs associated with the property. It is on the other hand possible for the seller to ‘opt to tax’ the transactions of land and property. Which means a 20% VAT will be charged on the transactions that would normally be exempt. The benefit of doing this for the seller is that it will enable them to reclaim all of the input VAT in respect of the property.  

Option to tax is not always helpful if the buyer is not able recover the VAT charged. For example, a charity, or a school are not able reclaim any VAT charged to them. The pros and cons of opting to tax under such circumstances is necessary before taking a final decision. 

It should also be noted that Land that is opted to tax will cover all of the land and any buildings and works which are part of the land. The business should clearly define the exact area that they intend to be covered by the option to tax notification. Any new constructions on the opted land will also be covered. Appropriate pre-planning is needed if a business thinks that they want any areas to be excluded. 

Buildings that are opted to tax cover the whole building, as well as the land and the curtilage such as a garage.  

The option to tax should be notified within 30 days of a decision being made to opt to tax. 

The option to tax is an important business decision which can have huge financial impact for the seller as well as the buyer, therefore full advice should be taken before making a final decision. 

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