Options open?
If you buy a property on which the vendor has 'exercised the option to tax', you generally have to pay VAT on top of the purchase price – and, to rub salt in, that puts up the Stamp Duty Land Tax. In some cases, though, the purchaser's intended use overrides the option, and there's no VAT. Sometimes the vendor needs to get a certificate from the purchaser; sometimes it's enough just to 'be informed' of the intention.
In a recent case, a charity bought a redeveloped property for use as a residential children's home – a 'relevant residential purpose' (RRP) that would cancel the developer's option. But the charity changed its mind, and used the property as its head office – if that had been the intention at the time of sale, the developer should have charged VAT.
The developers had treated the sale as exempt, and had paid back to HMRC all the input tax they had recovered on their costs by virtue of the option. Then HMRC came back wanting output tax on the sale. The trouble was, there was nothing in writing to show what the buyer had told them – the only contemporary record suggested a director had thought the option was cancelled simply because the buyer was a charity (which is wrong).
The tribunal accepted that, on the evidence, the charity had probably told the vendor that it intended to use the property for RRP. The output tax wasn't due.
If you are buying or selling a property on which the option to tax has been – or may have been – exercised, you need to proceed with care. We can advise you on what to charge and what records to keep, and when you need a certificate.