Option to Tax Disapplication

Q. My client is a VAT registered Ltd Co that owns a portfolio of rental properties both commercial and residential. The company purchased some land adjacent to a pub on which they incurred VAT. In order to reclaim the VAT, my client opted to tax. The company is now in the process of selling the land to a developer. The developer is insisting that no VAT must be charged on the sale of the land as they intend to develop residential properties. The purchaser has mentioned a VAT1614D. Could you please clarify what is this and will it allow my client to treat the sale as an exempt supply?

A. Generally, where the vendor of a property has an option to tax in place, VAT should be charged on the sale of the land and buildings.

However, if a building or part of a building is to be converted to a dwelling, a number of dwellings or solely for relevant residential use, the purchaser can request the disapplication of the option to tax.

A VAT1614D certificate can be given to the seller of a property by the purchaser requesting the disapplication of the option to tax for the conversion of the building to a dwelling or a relevant residential purpose. This certificate should be given to the seller before the exchange of contracts, letters or missives or the signing of heads of agreement.

In this case, your client is not selling an existing property for conversion. Your client is selling bare land for development and therefore the VAT1614D certificate cannot be accepted by your client. The sale of the land will be with VAT as the option to tax still applies.

Further information on the V1614D certificate can be found in VAT Notice 742A Opting to Tax Land and Buildings Section 3.4.

If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.

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VAT Advisor
0844 892 2470

Arti has worked in VAT since 2004 spending 11 years with HMRC. During her time in the department she was a visiting officer, a business records check officer providing educational visits and spent the last three years on the Alcohol Fraud team where she gained a good understanding of civil penalties and appeals. In addition she was an IT specialist providing support to colleagues and an associate trainer delivering VAT and Penalties training.

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