While many landowners and farmers will have implemented an option to tax on their property, there are occasions when removing it can be desirable, for example when a potential buyer or tenant is unable to recover VAT that would be charged on a sale or on lease rent due because of the option.

David McGeachy, Partner and VAT specialist with UK top 20 Chartered Accountants Saffery Champness

Option to tax is a mechanism that allows an owner to charge VAT on rental or sale of a commercial property, the advantage being that VAT incurred on associated costs for that property, ie refurbishment, can be recovered, whereas with no option to tax such VAT would be unrecoverable.

A single option to tax can cover a number of properties and parcels of land and can be removed after 20 years subject to conditions. However, you may not wish to remove the whole option. You could remove the option to tax for everything and then make a new option for those aspects where its retention is still required. But this can take time, and time is not always available.

A solution can be a Real Estate Election. Real Estate Elections can be made in such a way that allow parcels of land or buildings that were previously opted to tax and, where 20 years have passed, to be specified in the election. Then an option to tax can be removed on a ‘parcel by parcel’ basis at a later date when required.

David McGeachy, Partner and VAT specialist with UK top 20 Chartered Accountants Saffery Champness, and a member of the firm’s Landed Estates and Rural Business Group, comments:
“Real Estate Election provides an alternative method to remove an option to tax from different elements of a whole portfolio where 20 years have passed. Where this measure has been taken it allows the option to tax to be removed as and when specific parcels of land or property come up for sale or lease. In practice this should be a much quicker and easier process than that of removing the option to tax for everything and then reinstating it for those areas where it is advantageous to retain it. With landholdings that might comprise numerous opportunities in terms of disposals or leases the latter can be a very cumbersome option.

“Real Estate Election however automatically opts to tax new acquisitions made unless steps are taken quickly to opt new purchases out. This is a complex area and professional advice should be taken before making a Real Estate Election for such purposes, but for some it can be an extremely useful mechanism.”

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