Answers · UK 2025/26

What is the Option to Tax on commercial property and when should I use it?

An Option to Tax (OTT) is an election to charge 20% VAT on the sale or rental of commercial property, which allows recovery of input VAT on related costs. Once made, the OTT binds you for 20 years and is irrevocable (except within the first 6 months). It does not apply to residential property. HMRC must be notified within 30 days of making the election.

Last updated: 10 June 2026Last reviewed: 10 June 2026How we verify

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Commercial property is normally exempt from VAT: a landlord or seller cannot charge VAT on rent or the sale price, but as a consequence cannot reclaim input VAT on costs such as construction, renovation, or professional fees related to that property. The Option to Tax (OTT) -- formally called "opting to tax" under Part 1 of Schedule 10 of the VAT Act 1994 -- reverses this by electing to make the property a "taxable supply". Once you opt to tax, you must charge 20% standard-rate VAT on all future rents and on any subsequent sale of the property. In return, you can reclaim VAT on qualifying costs attributable to that property. When to use it: the OTT is most beneficial where your tenants or buyers are themselves VAT-registered businesses that can reclaim the VAT you charge (making it neutral for them), and where you have significant VAT-bearing costs to recover. It becomes problematic if your tenants are not VAT-registered -- such as small businesses, charities, banks, and insurance companies -- as the 20% VAT becomes an irrecoverable cost for them, potentially making your property less competitive or reducing its value. Key rules: the OTT applies to the whole building (not just part of it); once made it lasts for 20 years and cannot normally be revoked after the first 6 months; it does NOT apply to residential property (houses, flats, student accommodation) or to certain other specified buildings (e.g. buildings to be converted to residential use). You must notify HMRC of the OTT election in writing within 30 days using form VAT1614A (or online). Failure to notify does not invalidate the election legally but creates practical and compliance difficulties. A real estate anti-avoidance election (TOGC) can apply on the sale of property as a going concern to avoid a VAT charge on the sale itself.