HMRC have temporarily extended the deadline for notifying it of an option to tax land and buildings from the normal time limit of 30 days, to 90 days from the date the decision to make the option is made. This 90-day time limit will apply if the decision to opt to tax is made between 15th February 2020 and 31st May 2020.
What is an option to tax?
Most property transactions are exempt from VAT, meaning no VAT is charged on a sale or letting. This does, however, mean that you cannot recover the VAT incurred on building works, fees, and other expenditure in connection with the property – that is a separate issue. There is, therefore, an “option to tax” (also known as “an election to waive exemption”) the property so that it is standard-rated. This means that once you are VAT-registered ( and there are rules relating to that, which your accountant can help you with), VAT would be charged on a sale or letting, and you would be able to recover VAT on most building work, fees and other expenditure in connection with the property.
If the property is opted to tax, this option applies to all future dealings with the property (unless there is a specific reason for it not to apply to a transaction), unless the option lapses or is revoked. However, the option to tax is generally personal and does not transfer with the property on sale. Therefore, if the seller of a property has opted to tax the building, you will not obtain the benefit of this option once the purchase has completed. To also benefit from the option to tax you would need to notify HMRC of your decision to opt to tax the building.
There are however many exemptions and special rules in relation to the option to tax for VAT groups, partnerships, and trusts, etc, and advice should, therefore, be taken from your accountant in relation to the option to tax.
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