Reply To: Opting out of VAT when buying land

Forum Categories VAT ON PROPERTY TRANSACTIONS Opting out of VAT when buying land Reply To: Opting out of VAT when buying land

Trevor S

All of HMRC’s guidance on the option to tax is in their Notice 742A here: I’ll refer to extracts below.

From your wording, it sounds like the seller has made either a Real Estate Election or a Global Option to Tax. Both are covered by section 14 and broadly have the effect of opting all or a large number of properties. It’s also possible that they may just routinely opt to tax all properties as they acquire them. All have conditions that need to be met. But on the basis that we have no reason to believe otherwise, I’ll assume that they do have a valid option to tax which covers the property in question

Buyers cannot just choose to “opt out” of a seller’s option to tax. However, there are specific circumstances detailed in section 3 of the notice where the seller’s option to tax either won’t apply or can be “disapplied” by the buyer, and the sale will be VAT exempt. Generally they’re dependent on the current or intended use of the land and/or the status of the buyer, and some require the buyer to certify eligibility. But it would be worth you looking through that section to see if any seem relevant to your circumstances.

Another consideration would be whether your purchase would be regarded as a Transfer of a Going Concern (TOGC). These are covered by a different Notice, 700/9:, see section 6 of that notice onwards. Essentially this would most likely apply if:

  • the seller was currently letting the land to a third party tenant; and
  • you were buying the land with the ongoing lease to that third party and continued letting it to them; and
  • you registered for VAT (if you are not already) and opted to tax the land so that supplies you made of it were subject to VAT.

If you meet the TOGC criteria, you would need to agree with the seller that it was a TOGC, and the sale would not be subject to VAT.

If neither of the above apply, what is your intended use for the land? Would it be worth you registering for VAT and (if relevant) maybe opting to tax any onward supplies (if you’re making any)? You would need to consider whether your customers could disapply your option to tax.

Hope this helps! Land and property generally (not just the option to tax) is a very complex area of VAT. So, particularly if it appears that the option to tax will still apply, you may well benefit from a consultation with a VAT advisor. They will then be in a position to offer advice with a more detailed understanding of your business and your intended use of the property.