VAT – Option to tax

In VAT, the ‘option to tax’ (OTT) allows someone to treat supplies of non-residential land and buildings (L&B), which would otherwise be exempt, as being taxable. This means that you must charge VAT at 20% on any rents you charge tenants or on any sale proceeds, but it allows you to recover VAT on any costs incurred that relate to the property.

When deregistering for VAT, any OTT in place may impact the final VAT liability. HMRC has recently issued guidance on how to tell HMRC about an OTT on L&B when deregistering. Information is required regarding an OTT on any property that has been, or still is, owned when cancelling the VAT registration. This includes any options to tax which have been previously dis-applied.

The information needed must be submitted online via the Government Gateway and includes:
• property address;
• land registry title number;
• date the property was purchased;
• details of the previous owner, including their VAT registration number (if known);
• the date the property was sold or disposed of;
• the value or sale price of the property;
• details of the purchaser, including their VAT registration number;
• the date any option to tax was revoked if this happened before deregistering from VAT.

Decisions on whether to opt to tax a property are often complex. You must consider a number of factors, including who your tenant is (if you plan to rent out the property) and how much input tax you might save by opting to tax. Similar issues arise when dis applying an OTT, where this is allowed.

If you need assistance in this area, please do get in touch and we can point you in the right direction.