Does the Option to Tax apply to a new building when the old one is d...

A question recently came up about the VAT on an industrial unit where the owner had lodged an ‘option to tax’ on the building and charged his tenant VAT on the rent. That tenant moved out and the property owner had trouble getting a new tenant in the old-fashioned building, so he decided to demolish the building and rebuild something more modern that he could rent out for a higher price. He thought he wouldn’t have to charge VAT on rent any more, as he hadn’t lodged an option to tax on the new property. He was wrong.

Since 2008, it hasn’t been possible to opt land and buildings separately, so the option to tax made on the unit in 2010 covers:

  • the original unit that was demolished;
  • the land it was built on; and
  • any buildings put up on that land in place of the demolished building.

So the property owner’s option to tax still applies to his newly built property – and he can input tax recovery on the redevelopment.

If the option to tax had been made on the land, rather than on a building, he could have excluded the new building as it was constructed on the opted land from the option to tax. This is only the case if the new building is not within the curtilage of any existing building.

If this sounds confusing, your best bet is to chat to us about your specific circumstances and we can offer you sound advice to ensure your VAT is handled correctly.  Speak to our knowledgeable VAT team on 020 8530 0720 or email your query to