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HMRC internal manual

VAT Land and Property

HM Revenue & Customs
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Option to tax anti-avoidance - funding and financing: how to approach a funding question - key conditions

In any situation, a person can only be deemed to have been responsible for financing a development in the context of the legislation if two key conditions are met:

  • at the time the finance is provided or the agreement is entered into to provide the finance the financier must intend or expect that one of the three persons (owner, financier or somebody connected to either of them) will occupy the building for a non-taxable purpose (either non-business or exempt purpose), and 
  • the funds must be for the purpose of financing the purchase, construction or refurbishment of a building which qualifies as a capital item for its owner.

If either one of these conditions is not met, a person will not be deemed to be the financier even if he has provided the funds to meet part or all of the costs of the development. Each of these conditions is explained in more detail in the following paragraphs.