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HMRC internal manual

VAT Land and Property

Option to tax anti-avoidance - funding and financing: other payments or transfers from tenant to owner - funding or not?: transfers of land

The provision of finance is not restricted to monetary payments. It can also be the transfer of goods or assets. The most typical situation is where the person who will eventually occupy the new building provides the land for the development. If that land is provided free of charge or for a consideration less than its open market value, the developer, overall, will be paying less for the development than he otherwise would if he had purchased the land in the normal commercial market. Therefore, the tenant has made a financial difference to the costs of the development and is deemed to have financed the owner’s development.

This is not the case if the tenant sells the developmental land to the developer at the open market value. By paying the full market price the developer does not receive any financial benefit from the transaction. He still has to meet the full cost of the development, either from his own resources or third party finance. The tenant is not providing finance for the developer’s construction or reconstruction of the building.

In the case of larger developments, it will not normally matter if the payment for the land is made after the title to the land has been transferred, provided that the payment is made during the course of the development. The important point is that the developer pays the open market value for the land. The open market value is the monetary amount the developer would have to pay for the land if he bought it from a totally unconnected third party whose only motive is to realise, from the land, its normal commercial consideration.