Real estate elections for VAT

A real estate election is a single, permanent decision to opt to tax every commercial property interest a business, or its VAT group, acquires from then on. Each acquisition is treated as opted from the start of the day it is acquired, with no separate notification, provided the election itself was notified to HMRC on form VAT1614E within 30 days. Once made it cannot be revoked by the business; only HMRC can withdraw it, and only if information it asks for is not provided.

What is a real estate election?

Paragraph 21 of Schedule 10 to the VAT Act 1994 lets a person make a real estate election, often shortened to REE, covering relevant interests in any building or site it acquires after the election, and those acquired by members of its VAT group. For each acquisition the person is treated as if it had exercised an option to tax, and paragraph 21(2)(c) switches off the usual requirement to notify each option.

VAT Notice 742A section 14 describes the REE as a formal decision to opt to tax all future property acquisitions. Each property acquired is treated as separately opted from the time of acquisition, which means each option can later be revoked on its own if the normal conditions are met.

A relevant interest is defined in paragraph 21(12) as any interest in, right over or licence to occupy the building or site, or any part of it. That catches freeholds, leases and licences alike.

Why would a business make one instead of a global option?

Notice 742A paragraph 14.4 says REEs were introduced for businesses with very large numbers of properties that want to opt almost all of them without notifying HMRC every time they buy. Before then the only route was a global option covering, for example, the whole of the UK.

Paragraph 14.13.2 explains the drawback of a global option: it is a single option, so it can only be revoked as a whole and only if the conditions are met for every property it covers, and it has caused particular problems for VAT groups under the relevant associate rules. Paragraph 14.13.3 adds that a global option for all current holdings and future acquisitions can no longer be made. The REE keeps the convenience but leaves every property with its own option.

For a property investor or developer that always opts, the saving is administrative. The cost is loss of choice: every non residential acquisition is opted automatically, including ones where an exempt letting to a tenant that cannot recover VAT might have suited better.

When does each option take effect?

Paragraph 21(2)(b) treats the option as exercised on the day of the acquisition, with effect from the start of that day. Paragraph 21(13) fixes the time of acquisition as the time the supply to the buyer is treated as taking place for VAT, or the earliest such time if there is more than one. Notice 742A paragraph 14.5 confirms that if the purchase is a VAT free transfer of a going concern, the option takes effect from when the supply would have been treated as made had the going concern rules not applied.

That timing can be important on a going concern purchase of a let building. The buyer’s option must normally be in effect by the relevant date for the transfer to qualify, and Notice 742A section 11 accepts a real estate election notified and effective by then. A buyer who wants certainty can still make and notify an ordinary option before completion, as paragraph 14.6 allows.

Which acquisitions are not caught?

Paragraphs 21(3) to (5), summarised in Notice 742A paragraph 14.7, stop the REE generating an option in three cases:

• Already opted. The buyer, or a company in its VAT group at the time, has already opted to tax the property under the normal rules with effect from an earlier date.
• Existing interest. The buyer held another interest in the same property before the REE was made and still holds it when buying the further interest, typically a tenant buying the freehold of its own building, or an owner of one floor buying another.
• Permission would be needed. The buyer has made exempt supplies of the property in the 10 years before the acquisition, so that an ordinary option would require HMRC’s prior permission.

The option to tax also never applies to buildings designed or adapted and intended for use as dwellings, under the usual disapplication rules in Notice 742A section 3.

What happens to options made before the election?

Paragraph 22 of Schedule 10 deals with existing options. An option made by the electing business, or a member of its VAT group, is treated as revoked from the time of the REE if none of them holds an interest in the building at that time. An option over a site is revoked for any parts in which none of them holds an interest. Notice 742A paragraph 14.8.2 lists exceptions, mainly where the property was sold on terms that may produce further payments later, such as overage, or where a relevant associate has left the VAT group in certain circumstances.

A single option over a wider area, such as an old global option, can be split into separate options for individual parcels in which the group still holds an interest. Under paragraph 22(8) and (9) those separate options are treated as made by the electing business, keep the original effective date for revocation purposes, and cannot be revoked in the six month cooling off period. Notice 742A Section J, which has force of law, requires each parcel to be identified by postal address, HM Land Registry title number, map, plan or other description.

How do you make and notify a real estate election?

Paragraph 21(7) says an REE has effect only if notified to HMRC within 30 days beginning with the day it is made, or a longer period HMRC allows, in the specified form and with the specified information. Notice 742A paragraph 14.9 makes form VAT1614E mandatory and requires a list, in the format in Section K, of every non residential property in which the business holds an interest at the time. For each property the list gives:

• a description, by postal address, title number, map, plan or other description;
• for unopted property, the date the interest was acquired;
• for opted property, the date the interest was first acquired or, if later, the date the option first had effect; and
• which separately listed parcels are covered by the same option.

Where the date an old option took effect is unknown, Section K allows a best judgement date with a written explanation, which paragraph 14.10 says HMRC will normally accept without further enquiry. After the election, paragraph 21(8) lets HMRC require an updated list of holdings, acquisitions, disposals and other changes within 30 days, in the Section L format.

How does an election work in a VAT group?

Notice 742A paragraph 14.14 says any group member can make the REE, though HMRC expects the representative member normally to do so. The election then covers acquisitions by every company in the group, including companies that join later. The electing company is treated as the opter and the acquiring company becomes its relevant associate. A company that leaves the group is not covered for acquisitions it makes after leaving.

That reach is the main risk. A company bought into the group, perhaps with plans for exempt lettings, will have its later acquisitions opted automatically. Group structure and planned use should be reviewed before electing; see VAT group registration.

Can a real estate election be revoked?

Not by the business. Paragraph 21(10) says an REE may not be revoked except under paragraph 21(9), which lets HMRC revoke it if the business fails to provide information required under paragraph 21(8). The revocation then applies to acquisitions after a time HMRC notifies. Under paragraph 21(11) a further REE can then be made only with HMRC’s prior permission, and Notice 742A paragraph 14.15 adds that single options cannot be converted on a later election.

What can be undone is each individual option the REE creates. Notice 742A paragraph 14.3 says a property acquired that the business does not want opted may be revocable within six months of acquisition under the cooling off rules, if the conditions in paragraph 8.1 are met; later routes are the six year lapse and the 20 year revocation. See revoking an option to tax.

Illustration only. A property company makes an REE on 1 March and posts form VAT1614E with its list of 12 buildings on 20 March, inside the 30 days. In June it buys a vacant warehouse and, in August, the freehold of an office block where it already holds the head lease. The warehouse is opted from the start of the completion day with no further paperwork. The office freehold is not opted by the REE, because the company held the head lease before electing and still holds it; if it wants VAT on the freehold it must opt and notify in the ordinary way, as explained in notifying an option to tax.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

• Reporting gains with the real time CGT service
• Protective claims and elections
• Time limits for tax claims and elections
• How inheritance tax is calculated on an estate
• When an estate becomes a trust

Sources

• legislation.gov.uk: Act 1994 c. 23, schedule 10
• GOV.UK: Opting to tax land and buildings notice 742a

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.