News
September 2009
VAT Update
VAT - option to tax update
If you made an option to tax election on a property back in 1989, it is possible you could now revoke this election after 1 August 2009.
An election is made in writing to HMRC and means that VAT is chargeable on any income you earn from an opted property, including rental income or the proceeds of any sale (freehold or leasehold). However, an election cannot be revoked until 20 years after it was first made. The option to tax rules were first introduced on 1 August 1989, hence the opportunity to revoke elections now exists for the first time.
There are a number of reasons why you might wish to revoke an election:
- If you are renting out property to a tenant that is unable to reclaim all of the VAT on his expenses, then the VAT is an extra (and unwanted) cost to his business. Once an election is revoked, future rental charges will avoid a charge of VAT.
Examples of businesses that cannot reclaim any or all of the VAT they pay on expenses include doctors, dentists, insurance brokers, banks, building societies, betting shops, estate agents and charities.
- If you are selling the freehold or leasehold of a building, then it is possible that the buyer might not be able to reclaim VAT on the purchase price of the building. So revoking an election would again produce important VAT savings.
- Even if the buyer of a property is able to reclaim VAT, there could still be a significant stamp duty saving made by revoking an election before the building is sold. This is because stamp duty is charged on the VAT inclusive sale of a property.
The decision to revoke an option to tax election is complex and involves ensuring certain anti-avoidance rules are not a problem. Contact Artaius if you need further advice and assistance.
