Change in “option to tax” rules
The VAT rules governing the so-called “option to tax” changed with effect from 1 June 2008.
The "option to tax" is largely relevant to property developers and landlords – essentially, anyone with an interest in land and/or buildings who makes a supply of it to someone else. Supplies of land and buildings are generally VAT-exempt – which also means that any VAT costs incurred in the course of making that supply, such as refurbishing a bathroom and kitchen in order to make a house saleable, generally cannot be reclaimed. Vendors or landlords can, however, opt to charge VAT on their supplies of land and buildings. They can then recover the VAT costs they incurred in the course of making the supply.
The main rule changes are as follows:
l new rules providing that an option to tax will affect all the land/buildings on a given site (with transitional rules to cater for options already taken) – however, it is possible to exclude new buildings from the option to tax
l a new certificate will be issued for buildings which are being converted into dwellings
l new ability for intermediaries to disapply the option to tax
l new certificate for land sold to housing associations
l new rules for ceasing to be a relevant associate of an opter
l extension to the “cooling off” period for revoking an option to tax
l introduction of automatic revocation of the option to tax where no interest has been held for 6 years
l introduction of rules governing the revocation of an option to tax after 20 years
l revised definition of occupation for the anti-avoidance test including new exclusion for automatic teller machines
l introduction of a new way to op to tax (a real estate election)