Changes to option to tax for land and property owners

20 Jan 2023

Mixed property

HM Revenue & Customs (HMRC) has consulted on proposed changes to the way it deals with the notification of options to tax (OTTs) over land and property. It has now issued Revenue & Customs Brief 1 (2023) to announce implementation of its proposed changes from 1 February 2023. This FAQ addresses some of the common questions our land and property-owning clients have on the changes.

What’s changing with the option to tax?

HMRC will no longer acknowledge OTTs in writing. Further, it will not confirm, when an option to tax has been exercised if it is believed that the exercise date was in the last six years.

Why is this an issue?

Buyers’ solicitors usually require a copy of HMRC’s acknowledgement of an OTT to be exhibited when a commercial property is being sold either subject to VAT or as a ‘transfer of a going concern’ (TOGC).

Are there exceptions to the point on confirmation?

Yes, HMRC will make exceptions, but this will be considered on a case-by-case basis, such as insolvency or death of a VAT-registered sole proprietor. It is expected that this process will be narrowly defined and therefore it should not be assumed it will be open to all.

What action should businesses take?

Businesses should now ensure that any OTT made is notified to HMRC by emailing the completed form (VAT1614A). It has been confirmed that an automated response will be received from the HMRC OTT email address. The content of this email from HMRC is still being confirmed but it will not be a formal acknowledgement by HMRC of it confirming that the OTT is valid.

It is therefore important that businesses ensure OTTs are validly made, from the correct date, covering the correct property, and signed by an authorised signatory that is accepted by HMRC. If an appropriate person has not signed the OTT there is a risk that it is not valid. Who can sign depends on the type of business opting and advice should be sought on this point.

Businesses should also retain a copy of the VAT1614A form, the email sent to HMRC and the automated response. It is expected that buyers will accept this information when carrying out enquiries. Businesses should also ensure that the subject line contains sufficient information to identify who is opting, what property is being opted and the effective date. Therefore, if you are notifying several OTTs at the same time, we would recommend using a separate form and email to HMRC for each one.

It is important businesses properly consider the law and guidance relating to the effective date of an option and whether permission is required to be granted. If an option is submitted and does not ask for permission from HMRC, when it is required, the option is not valid. HMRC will do nothing with this type of submission other than log it on its system. It is therefore recommended that businesses document that they have considered the permission conditions to enable confirmation to be provided to any potential buyer that the OTT was validly made and notified.

What about belated notification, options requiring permission and revocations?

HMRC has confirmed that these will not be dealt with on the same basis. These types of options should be submitted to HMRC (again we would recommend emailing the appropriate forms and correspondence to HMRC’s OTT Unit) and HMRC will then ‘triage’ them from standard OTTs. HMRC will continue to correspond on these matters. Recent experience indicates a wait of between four and six months for a response on a ‘non-standard’ OTT submission.

When do these changes come into effect?

The changes come into effect on 1 February 2023. HMRC has confirmed that any option to tax submitted on or before 31 January 2023 should be handled under the existing process and businesses can therefore expect at least a letter confirming receipt of the OTT. It should be noted that this is subject to volumes and if there is a spike in OTT submissions before 1 February this process may be revisited.

For any further queries regarding the points raised, please speak to your usual Saffery contact, or get in touch with Sean McGinness.

Contact Us

Sean McGinness
Partner, Edinburgh

Key experience

Sean is Head of VAT at Saffery and advises corporates, charities and landed estates on their VAT process and controls.