Sale of Land – VAT Option to tax Disapplication

Sep. 12, 2017, 7:50pm

What is the VAT 1614D? Does is always allow the sale of land, on which an option to tax has been previously exercised, to be disapplied? 

The answer to this question is NO. As with many aspects of VAT, this is a complex  area and professional advice should always be sought.

Imagine a VAT registered Ltd Co who purchased land on which they incurred VAT. In order to reclaim the VAT, they also opted to tax the land. The company is now in the process of selling the land to a developer. The developer insists that no VAT must be charged on the sale of the land as they intend to develop residential properties which would be zero rated. Surely the VAT option would be disapplied in this circumstance?

Again the answer is no, the VAT option is not disapplied. Generally, where the vendor of a property has an option to tax in place, VAT should be charged on the sale of the land and buildings.

However, if a building or part of a building is to be converted to a dwelling, a number of dwellings or solely for relevant residential use, the purchaser can request the disapplication of the option to tax.

A VAT1614D certificate can be given to the seller of a property by the purchaser requesting the disapplication of the option to tax for the conversion of the building to a dwelling or a relevant residential purpose. This certificate should be given to the seller before the exchange of contracts, letters or missives or the signing of heads of agreement.

In this casethough, the company is not selling an existing property for conversion. The company is selling bare land for development and therefore the VAT1614D certificate cannot be accepted. The sale of the land will be with VAT as the option to tax still applies.

If you have a tax query, why not contact us to discuss it. Our team has a wealth of experience and would love to hear from you.

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