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HMRC internal manual

VAT Land and Property

Option to tax - anti-avoidance test: what is the meaning of 'eligible purposes'?: what is 'wholly' or 'substantially wholly'?

These terms are defined in law, see Box I, paragraph 13.9 of Notice 742A Opting to tax land and buildings. The law takes a forward look based on the intentions of the person occupying the property and consequently it would be difficult at the time of the grant to apply a precise arithmetical test. A person might not be able to determine precisely what the ratio of exempt to taxable use may be at a future date.

The provision will only apply where a building is, or will be, used for non-business purposes or for making exempt supplies such as finance, insurance, private education, and private health care or sports facilities. It is unlikely to affect situations where a building is occupied by a business mainly engaged in taxable supplies who makes some incidental exempt supplies, such as a retailer offering hire purchase or other credit terms. However financial and insurance products are increasingly being marketed by retailers and there is no blanket exclusion for the retail trade.