Can you revoke an option to tax

Yes, but only in three situations set out in Schedule 10 to the VAT Act 1994. You can revoke within six months of the option taking effect if no VAT has yet been charged under it and no transfer of a going concern has happened; the option lapses automatically if you hold no interest in the property for a continuous six years; and once more than 20 years have passed you can revoke on form VAT1614J if you meet HMRC’s conditions or get permission.

Why is an option to tax so hard to undo?

An option to tax turns exempt sales and lettings of a commercial property into standard rated supplies so that the owner can recover the VAT on its costs. Because that recovery is often front loaded, the law does not let an owner opt, reclaim a large amount of VAT and then quietly switch back to exemption. Paragraphs 23 to 25 of Schedule 10 give the only routes out, and VAT Notice 742A, section 8, sets out the conditions, several of which have force of law.

Two points are worth settling first. An option belongs to the person who made it: if you sell an opted building, the buyer is not bound by your option and decides for itself (Notice 742A, paragraph 4.4). And if you are in a VAT group, other group companies can become relevant associates who are bound by your option, which affects every revocation route below. For the basics of opting, see opting to tax property for VAT.

How does the six month cooling off revocation work?

Paragraph 23 allows an option to be revoked with effect from the day it was exercised, as if it had never been made, if all of these are met:

• less than six months have passed since the day the option had effect;
• no VAT has become chargeable on a supply of the property as a result of the option;
• there has been no transfer of a going concern of the property, either by you or to you, since the option had effect; and
• you notify HMRC on form VAT1614C before the six months end.

Notice 742A, section F, adds a further test about input tax. One of these must also be true: neither you nor any relevant associate has recovered what the notice calls extra property input tax (VAT attributable to supplies that are taxable only because of the option); or the revocation will make you and every relevant associate liable to pay all of it back under regulation 107 or 108 of the VAT Regulations 1995; or the extra input tax was recovered entirely on one capital item and is less than 20% of the total input tax on that item.

If you meet the first four conditions but none of the section F tests, you can apply for permission on the same form, again within the six months. HMRC says it will look closely at whether you or anyone else gained a VAT benefit, and it can attach conditions; if they are later broken, it may treat the revocation as never made.

Which traps apply to the cooling off route?

Notice 742A, paragraph 4.5, says that if you intend to revoke under the cooling off rules at the time you opt, the option is invalid from the outset. The route is for a genuine change of mind, not a planned round trip. Separate options created when existing global options are converted on making a real estate election cannot be revoked in the cooling off period (paragraph 8.1.9).

After revoking you adjust input tax under the normal rules. Regulation 108 clawback usually applies where the property has not yet been used, and regulation 107 applies where recovery was calculated under a partial exemption method and the revocation falls in the same longer period. See partial exemption.

When does an option lapse after six years?

Under paragraph 24, an option is treated as revoked if the person who made it does not hold a relevant interest in the building throughout any continuous period of six years beginning after the option took effect. A relevant interest means any interest in, right over or licence to occupy the building or any part of it. The revocation runs from the end of the six year period, and no form or notification is needed.

Paragraph 26 switches this off in certain cases, which Notice 742A, paragraph 8.2.2, describes as four circumstances:

1. you sold the property on terms that may require the buyer to make a further payment after the six years end, such as overage payable when planning permission is granted;
2. a relevant associate in your VAT group sold the property on similar overage terms;
3. before the six years ended, a relevant associate left your VAT group while it still held an interest, had sold on overage terms, or was connected with someone in the opter’s circle who held an interest;
4. at the end of the six years, a relevant associate in the same VAT group holds an interest or has held one in the previous six years.

The last three only apply to groups, so a standalone owner mainly needs to watch for overage clauses. See VAT group registration for how grouping works.

How do you revoke an option after 20 years?

Paragraph 25 allows revocation once more than 20 years have passed since the option first had effect, which is the day you exercised it or a later day you specified. You must meet either condition 1 or all of conditions 2 to 5 in Notice 742A, section G, and notify HMRC on form VAT1614J. The revocation takes effect from the day you state, which cannot be earlier than the day you notify.

Condition	What it requires
1. Relevant interest	Neither you nor a connected relevant associate holds any interest in the property, and no supply on an earlier disposal (such as an overage payment) is still to come.
2. 20 year	You or a connected relevant associate held an interest after the option took effect and more than 20 years before revocation.
3. Capital item	The property is not a capital item still open to capital goods scheme adjustment, ignoring cases where the remaining adjustments would not exceed £10,000.
4. Valuation	No supply of an interest in the 10 years before revocation was below open market value or arose from a grant set up to produce much higher consideration after revocation.
5. Prepayment	Nothing you paid for before revocation relates to your use of the property more than 12 months after it.

Conditions 2 to 5 are aimed at owners who still hold the building: they stop a revocation timed to dodge capital goods scheme repayments or to shift value into an exempt period.

If you do not meet the conditions you can apply for permission on the same form, but HMRC says it will not grant permission unless condition 2 is met. It can set the effective date by reference to an event, such as completion of a sale, and attach conditions. If you notified believing you met section G but did not, paragraph 25(4) lets HMRC still treat the option as validly revoked, and it will backdate a permission only where the failure was insignificant.

What does this look like in practice?

Illustration only. A company opts to tax an empty warehouse on 1 March, intending to let it to a logistics tenant. It recovers no VAT. In May the tenant withdraws and the only interested party is an insurer that cannot recover VAT on rent. No rent has been invoiced and no VAT has been charged. Within six months of 1 March the company files form VAT1614C; it meets section F because it has recovered no extra property input tax. The option is treated as never made and the letting to the insurer is exempt.

Illustration only. The same company sold an opted office block in 2015 for a price plus overage payable if a residential planning consent is granted. In 2021 it would ordinarily pass six years without an interest, but the overage means paragraph 24 does not apply and the option stays alive. If the company later reacquires the building, its old option still governs the VAT on any sale or letting it makes.

What mistakes come up most often?

• Assuming an option ends when you sell. It continues to bind you, and only lapses after six continuous years without an interest, subject to the exceptions.
• Missing the six month deadline. Both the notification and any permission application must reach HMRC within six months of the option’s effective date.
• Issuing a rent invoice before revoking. Once VAT has become chargeable under the option, the cooling off route is closed.
• Ignoring group companies. A relevant associate can block automatic lapse and the 20 year route.
• Forgetting the input tax side. Revocation usually means paying back VAT recovered on the basis of taxable use.

Before relying on any route, check what the option covers and who is bound by it, keep evidence of dates and interests held, and keep copies of every form filed. A buyer may also want to know about the history; see transfer of a going concern for how an option affects a sale of let property.

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Related Accountapedia entries

• VAT on commercial property: sales and lettings
• How to notify HMRC of an option to tax
• TOGC rules for selling a let commercial property
• Zero rated vs exempt supplies
• Option to tax anti avoidance for connected occupiers

Sources

• GOV.UK: Opting to tax land and buildings notice 742a
• legislation.gov.uk: Act 1994 c. 23, schedule 10
• GOV.UK: Vat revoking an option to tax within 6 month cooling off period
• legislation.gov.uk: Act 1994 c. 23, schedule 10
• legislation.gov.uk: Act 1994 c. 23, schedule 10
• legislation.gov.uk: Act 1994 c. 23, schedule 10
• GOV.UK: Vat revoking an option to tax after 20 years

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.