Option to Tax Disapplication

The First-tier Tribunal heard the case of Moulsdale Properties recently; the basis of which related to whether the sale of a property by the taxpayer was a taxable supply for VAT purposes. The property in question was opted to tax at the time of sale and the building was not a capital item under the Capital Goods Scheme (despite the sale price exceeding £250,000) due to over 10 years having elapsed since Moulsdale Properties purchased the relevant property.

 

However, due to the value of the transaction being greater than £250,000 and the sale being subject to VAT due to the option to tax, the property would become a capital item in the hands of the purchaser. As such, if the “exempt land test” is met, the Appellants option to tax could potentially be disapplied meaning the supply made would have been exempt from VAT. This resulted in circularity in the sense that if the supply was no longer taxable, a capital item would not be created on sale as such the supply becomes standard rated by way of the option to tax.

 

The First-tier Tribunal found in favour of HMRC and as a result, the option to tax was not disapplied and the supply of the property was standard-rated for VAT purposes.

 

Due to both the high value & complexity of property transactions, it is important to ensure they are being treated correctly for VAT purposes at the earliest opportunity.  Therefore, if you are involved in a property transaction, please seek expert advice from one of our VAT consultants on our free VAT helpline.

None

Read Next Blog Post

Close
Get in Touch