Opting to tax a commercial property: the thirty days, the six months and the twenty years
Opting to tax turns an exempt commercial property into a taxable one and lets you recover the VAT on it. The decision and the notification are separate acts, and only the notification carries a deadline: 30 days counted from the day you decided, not the day after. Since February 2023 HMRC has sent no acknowledgement letter and will confirm an old option only in narrow circumstances, which makes your own file the evidence. The two ways out sit 6 months and 20 years apart.
What the option does, and what it cannot do
Supplies of an interest in land and buildings are exempt from VAT by default. Exemption sounds attractive until you notice that it blocks recovery of the VAT on the purchase price, on refurbishment, on professional fees and on running costs. Opting to tax under Schedule 10 to the Value Added Tax Act 1994 turns the exempt supplies of that land into standard-rated ones at 20 per cent, and with them comes the right to recover that input tax. For a landlord whose tenants are themselves VAT registered and able to recover, that is a straightforward improvement. For a landlord whose tenants are banks, insurers, charities, medical practices or small unregistered businesses, the VAT is a real cost to the tenant and a real drag on the rent achievable, and the arithmetic needs doing before the decision rather than after it. The option does not work on a dwelling or a building intended solely for a relevant residential purpose. Under paragraph 7 it is also disapplied where the recipient intends to use the building solely for a relevant charitable purpose and not as an office, but that disapplication is not automatic: the recipient has to give the grantor a certificate, and without one there is no disapplication and VAT remains due. The option is personal to the person who makes it, yet under paragraph 18 it has effect in relation to the particular land specified rather than to any one interest in that land. It therefore covers every interest that person holds in the land and any they acquire later, and selling up does not by itself bring it to an end. What it never does is pass to a buyer. A purchaser inherits nothing and must decide for itself.
The decision and the notification are two different acts
You exercise the option by deciding to do so. You then notify HMRC. Paragraph 20 requires that notification to be given before the end of the period of 30 days beginning with the day on which the option was exercised, and beginning with means the day of the decision is day one. A decision taken on 1 September 2026 must be notified by the end of 30 September, not 1 October. A decision taken on 15 September must be notified by 14 October. That single word costs people a day, and a day is enough to matter. Notification goes by email to HMRC's option to tax national unit, or by post to BT VAT, HM Revenue and Customs, BX9 1WR. HMRC has said that new digital channels for notifying and revoking options, including bulk uploads, will be live before the end of 2026; they are not live yet. There is a discretion to accept a late notification, exercised only where HMRC is satisfied a genuine decision was taken at the relevant time. Its manual describes two evidential routes: direct documentary evidence from the time, such as correspondence with third parties referring to the option, or evidence that output tax has been charged and accounted for and input tax claimed consistently with the option since that date, supported by a written declaration from a director. HMRC may still refuse, for instance where the evidence is contradicted by an earlier enquiry in which the option was never mentioned, or where acceptance would produce an unfair tax advantage. A late notification cannot backdate anything: the earliest date an option can take effect is the date the decision was actually made. No particular form is required. Form VAT1614A is the only form in the series without legal force, so a letter carrying the right information is valid, though the form is easier. Identify the land or buildings clearly and give the date from which the option takes effect. For a building, give the full postal address including the postcode. For discrete areas of land, send a plan.
Nobody is going to write back to you
From 1 February 2023 HMRC stopped issuing acknowledgement letters for options notified. What you receive if you notify by email is an automated reply, and it is worth being precise about what that proves. It evidences the date HMRC received your email. It does not confirm that the notification was complete, that the signatory was authorised, or that prior permission was not required. Keep it anyway, with the notification itself and the board minute or file note recording the decision, because that bundle is now the whole of your evidence. HMRC also narrowed the circumstances in which it will confirm whether an option exists on a property, and the policy runs the opposite way to most people's assumption. HMRC will consider confirming an option only where the effective date is likely to be more than six years ago, or where the enquirer is an insolvency practitioner or a receiver appointed under a fixed charge. A recent option will not be confirmed. This matters on every acquisition, because where HMRC holds no record its own guidance requires it to say in writing that the absence of a record does not confirm that no option was made. Silence from HMRC is not evidence that land is unopted. One exception survives the change. Where prior permission to opt is granted, because the land has already been used to make exempt supplies and the automatic permission conditions are not met, HMRC does issue an acknowledgement of the option and its effective date.
The two ways out
An option is not permanent, but the exits are narrow and both are widely misread. The first is the cooling-off period. Under paragraph 23 an option can be revoked where less than six months have passed since the day it took effect, no tax has become chargeable on a supply of the land as a result of the option, the land has not been the subject of a transfer of a going concern, and the revocation is notified on form VAT1614C inside the six months. One further condition applies, and it is the one people get backwards: either no extra property input tax has been recovered, or revoking would make all of it repayable, or it was all recovered on a single capital item and comes to less than 20 per cent of the input tax on that item. A capital goods scheme item does not of itself close this exit. Revocation on this basis takes effect from the day the option was exercised, so it is genuinely undone. The second exit is the twenty year route in paragraph 25, and the clock runs from the day the option first had effect rather than from notification or from the date of the form. Once more than twenty years have passed, revocation is notified on form VAT1614J. There are five conditions, but they are not cumulative, and reading them as cumulative is what makes people think the route is shut. Condition 1 stands alone: if neither you nor a relevant associate holds a relevant interest in the land, that is enough by itself and conditions 2 to 5 are ignored. Anyone who does still hold an interest, which is to say the ordinary landlord, must instead satisfy all of conditions 2 to 5, being that a relevant interest was held after the option took effect and more than twenty years before revocation; that the land is not a capital item still subject to input tax adjustment; that no supply of a relevant interest has been made in the previous ten years either below open market value or under a relevant grant; and that no supply already made to you will be attributable to use of the land more than twelve months after revocation. There is no monetary threshold anywhere in the five, and HMRC's permission is not needed where the conditions are met. Permission is the fallback where they are not. A third route exists but works by itself: an option is treated as revoked where the person does not hold a relevant interest in the land throughout any continuous period of six years beginning after the option had effect, with no notification at all, subject to blocks where a relevant associate holds an interest and where overage or similar arrangements are in point.
An illustrative example of what the option costs in stamp duty
Take a commercial freehold selling for GBP 1,000,000 where the seller has an option in place at the effective date, so VAT of GBP 200,000 is charged. These are illustrative figures rather than anybody's transaction. VAT chargeable because of an option already made forms part of the chargeable consideration for stamp duty land tax, so the buyer is taxed on GBP 1,200,000 and pays GBP 49,500. Had the sale been exempt, the consideration would have been GBP 1,000,000 and the tax GBP 39,500. The option therefore costs GBP 10,000 of stamp duty, which is 5 per cent of the VAT, or 1 per cent of the net price. That GBP 10,000 is permanent even for a buyer who recovers the VAT in full, and on the grant of a new lease it applies to both legs, since the net present value of the rent is computed on the VAT-inclusive rent. It is a real number and it belongs in the negotiation. An option made after the effective date does not have this consequence, because VAT chargeable only by virtue of a later option is excluded from the chargeable consideration. Those are the rates for England and Northern Ireland; Scotland and Wales levy their own transaction taxes on different bands.
Where the option is disapplied, and the file that proves it existed
Paragraph 12 disapplies an option on a grant of land that is exempt land, broadly where the grantor, a person connected with the grantor, or a person financing the development and their connected persons, occupies the land otherwise than substantially wholly for taxable purposes. Nothing in those provisions requires an intention to avoid VAT, so the rule can bite on an ordinary commercial sale. In Moulsdale the Supreme Court recorded the First-tier Tribunal's finding that the provisions operate mechanistically and need no such intention, but that was not what the appeal turned on: the Court refused the appeal and held the option was not disapplied, because the grantor must intend or expect VAT-bearing costs other than the purchase price itself. Two de minimis figures apply and they are not interchangeable, 2 per cent for the grantor and connected persons and 10 per cent for a development financier and its connected persons who are not also connected with the grantor. Whether the rule can apply at all depends on the land being, or being intended or expected to become, a capital goods scheme item, and the threshold for that rose on 29 July 2026, which narrows the rule's practical reach without removing it. Note in passing that the option to tax notice was last updated on 26 May 2026 and still quotes the old figure; the regulations prevail over the notice. Everything above leads back to one practical conclusion. Since 2023 an option to tax has been proved by the taxpayer's own records rather than by anything HMRC will send. Keep in one place, for as long as you hold the property and beyond, the dated decision, the notification, the automated receipt, any permission acknowledgement, plans for land, and the returns showing output tax charged consistently from the effective date. Six years is the general record-keeping minimum and it is plainly not long enough for an asset carrying a twenty year revocation rule and a ten year capital goods scheme tail. On a purchase, ask what evidence of the seller's option has actually been seen, remembering that HMRC will not confirm a recent one and that its silence proves nothing. And if a property has been opted for two decades and the recovery was made long ago, it is worth asking whether conditions 2 to 5 are now met, because for a landlord letting to unregistered tenants that is a live commercial decision rather than a technicality.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.