The option to tax is a key decision for anyone dealing with commercial property and VAT. Normally, the sale or letting of commercial property is exempt from VAT, but the option to tax allows an owner to charge VAT and recover related input tax.
What Is the Option to Tax?
By making an option to tax, a property owner chooses to apply VAT to supplies of a property that would otherwise be exempt. This makes the income standard-rated, but in return it allows recovery of VAT on costs such as construction, refurbishment and running expenses.
Why Owners Opt to Tax
The main reason to make an option to tax is to recover input VAT that would otherwise be lost. For landlords with significant costs, this can be very beneficial, though it means tenants who cannot recover VAT face an extra cost.
Points to Consider
An option to tax generally lasts twenty years and must be notified to HMRC. It can also affect whether a later sale qualifies as a Transfer of Going Concern, so the decision needs care.
How TaxDigit Can Help
Our Guildford-based team helps property owners decide whether to make an option to tax. Get in touch before committing to a property VAT position.
Option to Tax: UK-Wide VAT Support
The option to tax is a major decision for commercial property owners right across the United Kingdom, not just near our Guildford head office. TaxDigit helps property owners and investors UK-wide decide whether to opt to tax and handle the process correctly with HMRC.
Our chartered certified accountants weigh up VAT recovery against the impact on tenants and buyers, then manage the notification and any later revocation. We support clients UK-wide, both remotely and from our Guildford office.
Opting to tax is a long-term commitment that normally lasts twenty years, so it should never be a snap decision. It can unlock input VAT recovery on a purchase or refurbishment, but it can also make a property less attractive to VAT-exempt tenants such as charities or financial businesses. We model the cash flow and the wider deal before you commit, and we keep the paperwork in order for any future Transfer of Going Concern.
How we help with the option to tax
- Assessing whether opting to tax improves your overall VAT position
- Notifying HMRC of an option to tax correctly and on time
- Advising on the impact for exempt tenants and future buyers
- Coordinating the option to tax with TOGC treatment on a sale
- Advising on revoking an option to tax where appropriate
HMRC explains the rules here: HMRC guidance on opting to tax land and buildings (VAT Notice 742A).
Frequently Asked Questions
What is the option to tax?
It is an election that lets an owner charge VAT on the sale or letting of commercial property that would otherwise be exempt, which in turn allows related input VAT to be recovered.
Can an option to tax be reversed?
There are limited windows to revoke an option to tax, including a cooling-off period and after twenty years, each with specific conditions.
Can TaxDigit help if I am not based in Guildford?
Yes. We advise on the option to tax for clients UK-wide, remotely and from our Guildford office.