Opting to Tax refers to Commercial Properties and VAT.
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.
However, you can opt to tax land. For the purposes of VAT, the term ‘land’ includes any buildings or structures permanently affixed to it. You don’t need to own the land in order 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.
If you are buying a building for your business to use and your business is VAT registered you may be able to recover the VAT without opting to Tax.
However, most commercial landlords will opt to tax so that they can recover their VAT. They will then charge VAT to their tenants.
When you sell the building as an investment its generally the case that the buyer will want to register for VAT so that the transfer will be within the Transfer of a Going Concern (TOGC) rules to avoid getting stuck with a VAT bill.
If your buyer is a pension scheme they can register for VAT to benefit from TOGC.
If you sell to a developer who will be converting from Commercial to Residential TOGC will not apply but the developer will be able to recover the VAT as they will be developing the a Zero rated Residential Property.
It is also possible to ask for a belated Option to Tax (Section 4.2.1 Notice 742A)
HMRC will normally accept a belated notification if you provide:
- direct documentary evidence that the decision was made at the relevant time (eg 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 belated notification in other circumstances. This will depend on the facts of your case.
The option is applied for using VAT 1614A.