Glossary · UK
What is Option to Tax (VAT)?
An election to charge VAT on an otherwise exempt supply of land or commercial property, allowing input VAT recovery on associated costs.
Full Definition
By default, the supply of land and buildings is exempt from VAT. A landowner or developer can opt to tax (elect to waive exemption under VATA 1994 Sch 10) to make supplies taxable at the standard 20% rate. This enables recovery of input VAT on construction, refurbishment, and professional costs. The option must be notified to HMRC within 30 days and applies to the building and any land within its curtilage. Once made, the option lasts for a minimum of 20 years. The option cannot apply to dwellings or buildings intended for conversion to dwellings. Transfers of opted properties can be structured as a Transfer of a Going Concern (TOGC) to avoid VAT on the sale, provided the buyer also opts to tax.