An option to tax under Schedule 10 of VATA 1994 commits the opter to charging 20% VAT on every future grant of the relevant interest for at least 20 years. Three live revocation routes exist before the 20 years run, and a fourth statutory mechanism (automatic disapplication on residential supplies) achieves the supply-level outcome without revoking the option as a whole. Each of the four has its own statutory paragraph, its own pre-conditions, its own form number, and its own Capital Goods Scheme interaction.

This page is the exit-route depth page in the option-to-tax cluster. It walks the four routes in turn, with the depth concentrated on Schedule 10 paragraph 24 (the 6-year-no-relevant-interest automatic revocation that most commentary skips) and on the Capital Goods Scheme clawback that shadows mid-life use changes regardless of revocation status. The architectural framework (why opt at all, what the 20-year lock means, who the option binds) lives on our companion option to tax framework pillar; the operational election mechanics (form VAT1614A, the 30-day notification, the disapplication categories at operational level) live on our companion VAT option to tax mechanics page.

The four routes at a glance

Before walking each route in depth, the four-route landscape on a single page:

RouteStatuteFormTimingWhat it does
Cooling-off revocationSch 10 para 23VAT1614CWithin 6 months of effective dateUnwinds the option entirely; supply reverts to exempt; clean exit if no tax events have crystallised
6-year-no-interest automatic revocationSch 10 para 24None (automatic)End of any 6-year continuous no-relevant-interest periodOption lapses at end of period; useful for portfolio cleanup after disposal
20-year revocationSch 10 para 25VAT1614JMore than 20 years after effective dateVoluntary unwind once the lock has expired; conditions per Notice 742A section 8
Automatic disapplication (not revocation)Sch 10 paras 5 or 6VAT1614D (para 6 only)Any time on residential-use suppliesOption remains in force on property generally; ignored on disapplied supply only

Each route serves a different operational position. Cooling-off catches the opter who made the decision in error and acts quickly. The paragraph 24 route catches the opter who has disposed of the property and wants the legacy option cleared off their books. The 20-year route catches the rare institutional holder whose lock has actually expired. Disapplication catches the opter whose tenant cohort has shifted toward residential conversion or recipient-certified residential use.

Cooling-off revocation under Schedule 10 paragraph 23

Paragraph 23 (verbatim heading 'Revocation of option: the "cooling off" period') provides the narrow window to unwind an option made in error. The statutory test: the time that has lapsed since the day on which the option had effect is less than 6 months, and no tax has become chargeable as a result of the option, and no relevant transfer of a business as a going concern has occurred. Notification on form VAT1614C ('Revoke an option to tax within 6-month cooling off period').

The 'no tax has become chargeable' test is supply-focused: no first taxable rental supply has been invoiced under the option, no disposal of the property has been made on a taxable basis. Where the opter has notified the option but the property has not yet been brought to market for taxable use, the cooling-off route is available. Where the first VAT invoice has been issued or the first taxable disposal has happened, the cooling-off route is unavailable and the opter must wait for paragraph 24 or paragraph 25.

HMRC's public-notice conditions in Notice 742A section 4.3 add operational refinements. Where the building is a capital item within the Capital Goods Scheme (capital expenditure £250,000 or more excluding VAT), the conditions typically require that no CGS adjustment interval has elapsed before cooling-off can apply. The opter must also be able to demonstrate that any input VAT recovered specifically because of the option can be repaid or is otherwise reversible. Practical application: the cooling-off route is cleanest where the option was notified shortly before the planned commercial use but the use itself has not yet started.

The 6-month period is calculated from the effective date stated in the original VAT1614A, not from the notification date. Where the option was made effective with a backdated effective date inside the 30-day belated notification window, the 6-month cooling-off clock starts from the backdated effective date, shortening the available window proportionally. Opters who notified with a backdated effective date should run the cooling-off calendar carefully.

Six-year-no-relevant-interest revocation under Schedule 10 paragraph 24

Paragraph 24 (verbatim heading 'Revocation of option: lapse of 6 years since having a relevant interest') automatically revokes the option where the opter has not held any relevant interest in the building or land continuously for any 6-year period after the option took effect. The revocation is treated as occurring at the end of that period. No election by the opter is required; no form is filed; the option simply lapses on the 6-year anniversary.

'Relevant interest' is statutorily defined as an interest in, right over or licence to occupy the building or land (or any part of it). The definition is broad: a freehold, a long lease, a short lease, a sub-lease, a licence to occupy, a right of way over part of the land, any of these is a relevant interest. The 6-year clock starts only when ALL of these have been disposed of, not when the most economically significant one has been disposed of. An opter who sold the freehold in 2026 but retained a 10-year right of way over a corner of the property has not started the paragraph 24 clock at all; the clock starts only when the right of way also expires or is released.

Paragraph 24 is subject to the anti-avoidance rule in paragraph 26 of Schedule 10. The anti-avoidance prevents the opter from gaming the route by, for instance, structuring a token short interest re-acquisition after a notional 6-year break to claim the option lapsed. Where the Commissioners conclude that a re-acquisition was motivated by paragraph 24 gaming, the no-interest clock can be treated as not having reset.

The route is operationally important for landlords cleaning up legacy options on disposed-of properties. A landlord who opted on a commercial unit in 2010, disposed of the property in 2020, and never re-acquired any interest, sees the option lapse automatically in 2026 with no further action. For the 4 years 2020 to 2024 the opter still has a notional option position on the property despite holding no interest; this matters if the opter buys back into the property in that window (which would reset the clock). After 2026 the option is fully spent and any subsequent re-acquisition is governed by a fresh option-to-tax decision.

For VAT groups, the no-interest test is applied at the group level: a property let between group members continues to constitute a relevant interest held by the group as a single VAT entity, so disposing of group-member-A's interest but retaining group-member-B's interest does not start the paragraph 24 clock.

Twenty-year revocation under Schedule 10 paragraph 25

Paragraph 25 (verbatim heading 'Revocation of option: lapse of more than 20 years since option had effect') opens the principal voluntary revocation route once more than 20 years have lapsed since the day the option had effect. Notification on form VAT1614J ('Revoke an option to tax after 20 years'). Two pathways exist within paragraph 25: revocation by meeting the conditions in HMRC's public notice (Notice 742A section 8), or revocation with prior permission from the Commissioners.

Notice 742A section 8 conditions vary in practice but typically require: the 20-year period has fully expired (HMRC counts strictly from the effective date in the original VAT1614A); any Capital Goods Scheme adjustment periods on the property have run their course (10 intervals from the relevant capital expenditure); the property has not been the subject of recent material input-VAT recovery that would skew the post-revocation position; the opter is up to date with VAT-return filings.

Where any of the public-notice conditions is not met, the opter applies for prior permission from the Commissioners. The Commissioners' discretion is wide; refusal is not uncommon where the revocation would deliver a tax advantage that the public-notice conditions were designed to prevent (for instance, where the opter is about to make a substantial exempt grant that would benefit from the post-revocation exempt position).

Real-world frequency of paragraph 25 revocation is low in commercial portfolios because most opted property is sold within 20 years and the option ages out via the buyer's own VAT position rather than the seller's revocation. The route matters most for institutional holders of long-life assets (large office portfolios, industrial estates, mixed-use blocks) where the same legal owner has held the property continuously for two decades and now wants to re-exempt the future supplies (typically because the prospective tenant cohort has shifted toward substantially-exempt occupiers and the rent-depression cost has caught up with the original recovery prize).

Disapplication is not revocation

Paragraphs 5 (verbatim heading 'Dwellings designed or adapted, and intended for use, as dwelling etc') and 6 (verbatim heading 'Conversion of buildings for use as dwelling etc') are not revocation routes. They are statutory disapplications: the option remains in force on the property generally; the statute simply ignores it on supplies that meet the disapplication conditions.

Paragraph 5 disapplies the option automatically on grants of buildings (or parts) that are designed or adapted, and intended for use, as a dwelling or number of dwellings, or solely for a relevant residential purpose (the Schedule 8 Group 5 Note 12 definition). No certificate from the recipient is required; the disapplication is property-status-based.

Paragraph 6 disapplies the option on grants where the recipient certifies (on form VAT1614D, 'Certificate to disapply the option to tax buildings') that the recipient intends to use the building as a dwelling, for relevant residential purposes, or for the relevant conversion intention. The certificate must be given within the period specified in a public notice or at any later time before the seller makes the supply. The disapplication is recipient-intent-based.

The disapplication paragraph-walk page covers paragraphs 5, 6, and 12 (developers of exempt land anti-avoidance) in distinction-by-paragraph form with their distinct trigger conditions, evidence requirements, and Capital Goods Scheme implications. For exit-route purposes, the important point is that disapplication leaves the option fully in force on every supply that does not meet the disapplication conditions, while revocation under paragraph 23, 24, or 25 unwinds the option on every future supply of the relevant interest.

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The Capital Goods Scheme clawback on use changes

The CGS under SI 1995/2518 regulations 112 to 116 runs for 10 intervals on capital expenditure of £250,000 or more (VAT-exclusive) on land or buildings. At each interval, the recoverable proportion of the originally-claimed input VAT is re-tested against the property's current taxable-supplies use. Where the property's use has shifted toward exempt supplies, the over-recovered portion is repaid in the form of a CGS clawback for that interval.

The clawback risk attaches to USE CHANGES during the 10-interval period, not to revocation events as such. Where the opter still holds the property and still has the option in force, but a paragraph 12 disapplication has triggered (because a connected substantially-exempt occupier has moved in), the use shift is the trigger and the clawback runs from the disapplication interval onward. Where the opter disposes of the property under paragraph 24, the disposal is a CGS event in the disposal year with a final adjustment to nil-recovery on remaining intervals. Where the opter exits via cooling-off under paragraph 23, HMRC's public-notice conditions typically restrict the route precisely because they want any CGS clawback to be accounted for first.

Worked example: Whitford Properties Limited (anonymised commercial landlord). Whitford acquires a regional office building in early 2026 for £1.5m and refurbishes for £750,000 plus £150,000 input VAT. Whitford opts to tax on the property effective March 2026 (clean VAT1614A; no pre-option exempt grants; no paragraph 28 prior permission required). Refurbishment completes in November 2026; the office is let to a VAT-registered taxable corporate tenant on a 5-year lease at £180,000 per annum plus VAT. Whitford recovers the £150,000 input VAT in full at acquisition.

2028 (Year 3 of CGS adjustment period): the original tenant exercises a break clause and exits. Whitford lets the property to a connected family-trust trading entity carrying on a private healthcare practice (substantially-exempt). The paragraph 12 disapplication triggers; the supply to the connected substantially-exempt occupier is treated as if the option had never had effect on it.

The CGS clawback now runs from Year 3 onward. The remaining 7 intervals (years 3 to 9 from acquisition; year 10 is the final adjustment) carry a clawback of (£150,000 / 10) × 7 = £105,000, payable in 7 equal annual instalments of £15,000 each from year 3 onward. Whitford does not need to revoke the option; the use change has done the economic work of revocation through the CGS mechanism. Whitford's only options are: (a) accept the clawback and continue letting to the connected occupier exempt; (b) restructure the let through an unconnected operating company to remove the connected-party-recovery problem; or (c) dispose of the property under paragraph 24 (the disposal triggers the final CGS adjustment and starts the 6-year-no-interest clock toward automatic revocation of the now-economically-spent option).

The decision tree: mapping landlord position to exit route

Sequence the four routes against your operational position:

  1. Question 1: Has the option been effective for less than 6 months? If yes, AND no tax has become chargeable as a result of the option, AND no TOGC has happened: cooling-off under paragraph 23 (VAT1614C) is the cleanest route. The conditions are tightly checked but the supply reverts to exempt with no clawback if the route is open.
  2. Question 2: Have you disposed of the property and not re-acquired any relevant interest? If yes, paragraph 24 will automatically revoke the option at the end of the 6-year-no-interest period. No election required; just track the calendar and confirm at the 6-year anniversary. Watch the paragraph 26 anti-avoidance trap: do not re-acquire any interest in the same property until after the 6 years have run, or the clock resets.
  3. Question 3: Has more than 20 years passed since the option had effect? If yes, paragraph 25 (VAT1614J) opens. Check Notice 742A section 8 conditions; apply to the Commissioners for prior permission if any condition is not met. The route is rare in commercial portfolios but live for long-hold institutional assets.
  4. Question 4: Is the relevant supply on a building intended for residential or charitable use? If yes, automatic disapplication under paragraph 5 (no certificate needed) or recipient-certified disapplication under paragraph 6 (VAT1614D) is the right answer. The option remains in force on the property generally; the specific supply is statutorily ignored.
  5. Question 5: None of the above? The option must run to its 20-year endpoint. Plan the property's use against the lock period: budget for CGS clawback risk on use changes, model tenant covenant scenarios, and price exit options at year 15 or year 18 (disposing into the buyer's option position is typically cleaner than waiting for paragraph 25).

The four-route logic generally does not need to be re-walked at each tenant change; the original opt decision should have been made on a 20-year horizon and the routes should be evaluated only when the opter's operational position genuinely shifts (planned disposal, regret of opt decision, residential conversion, expiry of long-life institutional hold). Routine year-to-year use changes are handled by the CGS adjustment mechanic, not by revocation.

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