Excluding a New Building from Land which is Opted to Tax

HMRC have recently published updated guidance on this subject. The sale, rent and lease of land and buildings are usually treated as exempt from VAT, this means VAT isn’t charged and input VAT on expenses incurred can’t be reclaimed.  However, if you opt to tax the land, the supplies you make will become standard rated until you are able to revoke the option after 20 years. If you have a plot of bare land which you have previously opted to tax that you now wish to build on, you can complete a VAT1614F form.  This will exclude the new building from the option to tax on the land, meaning you don’t have to charge VAT on the sale, rent or lease of the property. The form is simple enough, it asks questions such as name of the person who opted to tax and details of the building you wish to exclude from the option.  You can exclude the property from the earliest of the following:

• the first grant of an interest in the building or any part of it
  • when the building is first occupied, or
  • completion of construction of the building

If you choose to exclude a new building which is then rented to a tenant, it is important to remember that you will now have to complete a partial exemption calculation each period to calculate how much input VAT you are allowed to recover. https://www.gov.uk/government/publications/vat-new-buildings-exclusion-from-an-option-to-tax-vat1614f? If you think this affects you and need advice on any of the above, don’t leave this to chance, speak to your advisors or speak to us, our VAT and Tax advice is not as expensive as you think.