Opting to Tax Property for VAT

Opting to tax is a choice to charge VAT on the rent or sale price of a commercial property that would otherwise be exempt. Once the option has effect, your supplies of that land or building are normally standard rated and you can usually recover the VAT you incur on buying, building or refurbishing it. You must normally notify HMRC within 30 days of your decision, and the option generally binds you for 20 years, with only narrow routes out.

What is an option to tax?

Most supplies of land and buildings, such as commercial lettings, are exempt from VAT. The owner charges no VAT but also cannot recover the VAT on related costs. The option to tax, explained in HMRC VAT Notice 742A, turns those exempt supplies into standard rated ones.

An option on a building covers the whole building and the land under it and within its curtilage. An option on bare land also extends to buildings later put up on it, unless you specifically exclude them.

Why would you opt to tax a commercial property?

VAT recovery. If you buy an office from a seller who has opted, the price carries VAT. Let it on an exempt basis and that VAT is usually lost. Opting makes your rent standard rated, so VAT on the purchase, refurbishment and running costs becomes recoverable. Tenants who are VAT registered and make taxable supplies can usually recover VAT on rent, so it costs them little beyond cash flow.

Should I opt to tax my commercial property?

It depends on who will occupy or buy the building. Weigh up:

• Your tenants. Insurers, banks, many medical practices and charities cannot recover much VAT, so an opted rent costs them 20% more.
• Your buyers. An exempt buyer may pay less for an opted building.
• VAT registration. Opted rents count towards the VAT registration threshold. If you are not yet registered, the notification can go in with your registration application.
• The commitment. Revoking is only possible in limited circumstances.

Do I need HMRC permission to opt?

Sometimes. If you have made exempt supplies of the property in the 10 years before the option would take effect, you normally need HMRC’s permission first, using form VAT1614H. Notice 742A sets out automatic permission conditions that remove this step in certain cases, for example a mixed use development where the only exempt supplies have been of the dwellings.

How do I notify HMRC, and what is the deadline?

You must normally notify HMRC within 30 days of the decision to opt. Form VAT1614A is optional; any written notification is acceptable if it clearly identifies the property and the date the option takes effect. The effective date cannot be earlier than the day you made the decision.

HMRC accepts notification:

• By email to optiontotaxnationalunit@hmrc.gov.uk, the recommended route, which produces an automated receipt showing the date received.
• By post to the Option to Tax Unit, with no acknowledgement sent.
• With your VAT registration application, if registration is pending.

At the time of writing, HMRC’s guidance does not describe a dedicated online form. Keep the receipt with the deeds, because buyers’ solicitors routinely ask for proof.

What if I missed the 30 day deadline?

HMRC may accept a late notification if you can produce direct documentary evidence that the decision was made at the relevant time, or evidence that you have been accounting for VAT on the property together with a written declaration.

Can I revoke an option to tax?

Only in three situations.

• Cooling off within 6 months. You can revoke without permission, using form VAT1614C, if less than 6 months have passed since the option had effect, no VAT has become chargeable on a supply of the property, there has been no transfer of a going concern, and one of the further conditions on input tax recovery in Notice 742A is met.
• Automatic lapse after 6 years. The option is revoked automatically if you have not held an interest in the property for a continuous period of 6 years after it took effect. No notification is needed, subject to some exceptions.
• After 20 years. Once 20 years have passed since the option first had effect, you can revoke using form VAT1614J, provided you hold no relevant interest in the property or you meet a further set of conditions in the notice. Otherwise you can apply for permission.

When does the option to tax not apply?

Notice 742A lists supplies the option has no effect on, including:

• Dwellings, meaning buildings designed or adapted for residential use.
• Buildings for a relevant residential purpose, such as care homes and student accommodation. The buyer or tenant must tell you about the intended use.
• Buildings to be converted into dwellings, where the buyer gives a certificate on form VAT1614D before the price is legally fixed.
• Buildings used solely for a relevant charitable purpose, other than as an office for general administration.
• Land sold to a housing association that provides a certificate on form VAT1614G.
• Land sold to an individual to build their own home.
• Caravan pitches and houseboat moorings.

What is the anti avoidance rule?

In outline, the option does not apply to a grant of an interest in a property where the property is a capital item for the grantor or for someone who financed its development, and the grantor, the financier or a person connected with them occupies it mainly for exempt or non business purposes.

How does the option to tax interact with the Capital Goods Scheme?

The VAT Capital Goods Scheme adjusts VAT recovery on large property costs over an adjustment period if use moves between taxable and exempt, for example because you opt or revoke.

The scheme was reformed from 29 July 2026. HMRC’s Revenue and Customs Brief 7 (2026) confirms that the threshold for land, buildings and civil engineering works rose from £250,000 to £600,000, excluding VAT. Items already within the scheme under the old threshold stay in it until the end of their adjustment period.

What happens when I sell an opted building?

A sale of an opted commercial building is normally standard rated. Where a let building is sold with its tenancies, it may qualify as a transfer of a going concern, and the buyer’s own option to tax is often central to that treatment. Take advice before exchange.

What if HMRC questions my option to tax?

A missing notification receipt or a disputed effective date can mean months of correspondence and a large accountant’s bill. Solar Protect tax investigation insurance covers up to £100,000 of accountant’s fees with no excess, including VAT enquiries. If you own or let commercial property, get a quote before HMRC comes calling.

Related Accountapedia entries

• VAT when a receiver or lender sells a property

Reviewed by Matthew Bartlett, Director, Solar Protect. Last reviewed 29 September 2026. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.