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HMRC internal manual

VAT Land and Property

Option to tax: overview of the option to tax


The facility to ‘opt to tax’ land and buildings was introduced on 1 August 1989 after some major VAT liability changes. Before 1 April 1989, the UK exempted or zero rated most property transactions, but after the ECJ ruled that much of this treatment was unlawful, the UK introduced standard rated VAT to the construction and freehold sale of new commercial buildings and changed the liability of long lets of commercial buildings from zero rated to exempt. Landlords therefore started to incur irrecoverable input tax on construction costs or freehold purchases. To mitigate this effect, the UK introduced the option to tax.

Before 1 June 2008, the legal terminology for an option to tax was ‘election to waive exemption’ and the expression ‘option to tax’ was only used informally. The term ‘election to waive exemption’ is no longer used in the legislation but you may still come across it in documents from before June 2008.

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General information about the option to tax

You should see Notice 742A Opting to tax land and buildings for general information about the option to tax.

This guidance supplements Notice742A where appropriate. It does not repeat the content of 742A.