Landowners thinking of selling may need to consider opting to charge VAT rather than be making an exempt supply which is the default position.  Generally, the reason for opting to tax is to recover input tax.  Like commercial property landlords, sellers who have not already opted to tax in relation to property must decide whether or not to opt for VAT. The seller of land may obtain two advantages by opting for VAT, namely:

1. The recovery of input tax attributable to the sale (subject to the usual requirements).


2. The cash-flow advantage of holding the VAT on the purchase price from the date of payment (usually completion) to the date on which he must account to HM Revenue & Customs (HMRC) for the VAT (up to four months later).

The option for taxation is exercised in relation to land or buildings specified by the person making the election, who must give written notice of it to HMRC. Once the option is exercised, the land exemption ceases to apply to supplies of the land or building concerned by the person exercising the option.  The option for taxation is normally irrevocable.

The VAT position for a land sale

Sometimes a landowner will incur large VAT charges on sale-related costs such as planning expenses or a promoter's fee. The VAT on such expenses may be recovered if the landowner registers for VAT (if not already registered) and opts to charge VAT on the property.

Scope of the option for taxation

The option to charge VAT may be made for a specified area of land, a building, an interest in part of a building or a planned building. When the option is exercised for a building, it applies to all of the land within the curtilage of the building.

Notification of the option for taxation

Opting to tax is a two-stage process. Stage one is making the decision to opt to tax. Stage two is notifying HMRC.

An option to tax must be made from a current or future date as an option to tax cannot be exercised retrospectively. The option to tax is effective from the 'start of the day on which it is exercised or the start of any later day specified in the option'.

An option to tax is not effective unless notified to HMRC on the correct form within 30 days from the effective date although HMRC have discretion to accept belated notifications.

The key to recovering VAT is to establish a business making taxable supplies.  Opting to charge VAT on the sale of land can create taxable supplies which may allow the recovery of substantial amounts of VAT on related expenses incurred.

As with all such tax situations, advice should also be sought before proceeding.  For further details call Alan Boby on 01295 250401 or email aboby@ellacotts.co.uk .

Alan Boby

Ellacotts LLP

 

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