Moulsdale Properties appealed a decision by the First-Tier Tribunal to uphold an option to tax on a property, resulting in its sale being taxable for VAT purposes. On appeal, the case was heard by the Upper Tribunal.

The Appellant purchased the property in 2001 and opted to tax before leasing to a connected party which made exempt supplies. As the value of the property was over £250,000, it qualified for the Capital Goods Scheme and as such, under the anti-avoidance legislation, the appellant considered that the option to tax was disapplied and all payments relating to the leasing of the property were exempt from VAT. On selling the property to CSPV (an unregistered business who did not opt to tax the property on purchase), Moulsdale Properties did not charge VAT on the sale on the basis that the option to tax had been disapplied.

The defining factor of this case was whether Moulsdale Properties intended that the land would become a capital item in CSPV’s hands. If so, the option to tax would be disapplied and the sale exempt from VAT. The Upper Tribunal agreed with the First-Tier Tribunal that, due to the Appellant anticipating the sale to be exempt, they did not expect the property to be a capital item. Consequently, the option to tax was upheld and the sale of the property was taxable.

Due to the large sums of money involved in property transactions, it is crucial to ensure that the VAT treatment is correct to prevent any unpleasant surprises down the road. To clarify your VAT position, seek expert advice through our free helpline.