What does the option to tax actually do?

It overrides the default VAT exemption on a specific commercial property (or piece of land) and converts future supplies of that property into standard-rated 20% VAT supplies. The legal mechanism is an election to waive exemption under VATA 1994 Sch 10 para 2. Once made, the property's rents, service charges, and sale proceeds become VATable, and the landlord can recover input VAT on costs that relate to those supplies (acquisition VAT, refurbishment VAT, agent fees, professional fees).

Does the option to tax attach to the property or to me?

To you. This is the single most-misunderstood point about OTT. The option binds the person (or VAT group, or partnership) who made it, not the building. When you sell the property the option does not pass to the buyer automatically. The new owner makes their own opt decision (or accepts an exempt sale under the disapplication-on-TOGC rules). Two consecutive owners can hold the same building with opposite VAT positions: one opted (taxable), one not (exempt).

How long do I have to tell HMRC after deciding to opt?

Normally 30 days. You make the underlying decision (a board minute, a written file note, an email to your accountant) and then notify HMRC on form VAT1614A within 30 days of that decision. Late notifications are sometimes accepted if you can prove the decision was made on the earlier date and you have charged output tax and recovered input tax consistently. HMRC will scrutinise late notifications and may refuse to backdate.

Can I opt to tax part of a building only?

Yes, in defined circumstances. Sch 10 para 2 lets you opt over a building, a piece of land, or a part of a building that is structurally separate (a single floor, a single suite). You cannot opt over an arbitrary tenant lease alone, but you can opt selectively across a portfolio of separately identifiable units. Where a property has a mixed-use element (commercial below, residential above), the option is automatically disapplied in respect of the dwellings under Sch 10 para 5.

Can I change my mind after making the option?

There are three withdrawal routes, each with conditions. The 6-month cooling-off period under Sch 10 para 23 lets you revoke the option (form VAT1614C) provided no tax has yet been charged on a supply, no transfer of going concern has happened, and you have not recovered significant input tax under it. Outside the cooling-off period the option is binding for 20 years (Sch 10 para 25). After 20 years you may apply to revoke on VAT1614J subject to further conditions. A third, narrower route allows revocation where you have not held a relevant interest in the property for at least 6 years (this catches landlords who have sold out).

Does the option to tax cover residential parts of a mixed-use property?

No. Sch 10 para 5 carves out dwellings: where a building is designed or adapted (and intended for use) as a dwelling or number of dwellings, the option does not bite on those parts. A mixed-use building (shop with flat above, pub with flats above) is opted on the commercial element only. The residential rent remains VAT-exempt regardless of the opt. Apportionment between the commercial and residential elements is required on purchase price, refurbishment cost, and ongoing input VAT (the partial-exemption rules then govern how much of the input VAT you recover).

What is the connected-party 80% rule?

Where the property is sold or let to a person connected with the grantor (within the s.1122 CTA 2010 / s.839 ICTA 1988 sense), and the connected occupier is not expected to recover at least 80% of the VAT it pays, the option can be automatically disapplied under Sch 10 paras 12-17 anti-avoidance rules. The mechanism (the 'exempt land test') treats the option as never having effect, the supply reverts to exempt, and the grantor cannot recover input VAT. In practice the rule catches opted property let to connected financial-services, healthcare, education, or charity entities that are themselves substantially VAT-exempt.

Do I need HMRC's permission to opt to tax?

Usually no. Most opt-to-tax notifications are made under 'automatic permission' which means HMRC does not need to consent. Prior permission is only required in defined circumstances (typically where you have already made exempt supplies of the property in the past 10 years, or where complex connected-party arrangements are involved). Where prior permission is required you apply on VAT1614H rather than VAT1614A. Notice 742A section 5 sets out the automatic-permission conditions in full.

How does opting to tax interact with SDLT on a sale?

SDLT is calculated on the VAT-inclusive consideration. If you sell a £1,000,000 opted commercial property to a buyer who pays £1,200,000 including VAT, the buyer's SDLT base is £1,200,000 (not £1,000,000). For commercial property at 2026/27 SDLT rates this changes the buyer's bill noticeably (5% over £250k threshold). The buyer recovers the input VAT through its own VAT registration but the SDLT cost is a sunk cost not recoverable. This is one of several reasons commercial buyers prefer to negotiate TOGC treatment where possible.

What happens to the option to tax when I sell my opted property to a VAT-registered buyer?

Two routes. Default: the sale is a standard-rated supply by you (20% VAT charged on consideration). The buyer pays VAT, then recovers it if VAT-registered and the buyer in turn opts on the property. Alternative route: the parties meet the TOGC conditions under Article 5 VAT (Special Provisions) Order 1995, in which case the sale is outside the scope of VAT entirely (no VAT charged). For TOGC to apply on opted commercial property the buyer must (a) be VAT-registered, and (b) have notified its own option to tax by the relevant date (usually completion). Failure on either limb collapses the TOGC and reinstates the 20% VAT charge. See our TOGC guide for the full five-condition test.

Does my option to tax bind a buyer after sale?

No. Your opt is personal to you and does not transfer with the property. The buyer makes its own decision. Where the parties intend a TOGC, the buyer must notify its own VAT1614A by the relevant date (usually completion); if it does not, TOGC collapses and the sale becomes VATable. This is the most common failure mode in TOGC on commercial property: parties assume the seller's opt carries through, the buyer files late or not at all, HMRC retrospectively assesses 20% VAT, and a contractual dispute follows.

What evidence do I need to keep to prove I opted to tax?

Keep the underlying decision document (board minute, written advice, contemporaneous file note) and the HMRC acknowledgement of the VAT1614A. HMRC's evidence-of-option register exists but is not always conclusive on its own. Tax practice is to retain both the original notification (with date-stamped HMRC reply) and the underlying decision evidence for the full life of the option, plus a further 6 years after revocation. Capital Goods Scheme adjustments may run for 10 years from acquisition and rely on the option being demonstrably in place.

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

Closely. The Capital Goods Scheme (CGS) runs for 10 intervals on standard-rated capital expenditure of £250,000 or more on land and buildings (VAT-exclusive). The initial recovery rate at acquisition is determined by your taxable-supplies use (heavily influenced by whether you have opted). If your use of the property changes during the 10-year CGS period (you stop opting on a new building, you change tenant mix, a disapplication event occurs), each annual interval requires a recalculation and an adjustment of the original VAT recovery. The OTT election sits upstream of the CGS bite; revoking or losing the option mid-cycle is the most common trigger for material CGS clawback. See our separate guide on the Capital Goods Scheme for the 10-interval mechanic.

Property Types & Specialist Tax

VAT Option to Tax Commercial Property: Mechanics, Cooling-Off and Revocation

23 May 2026 · Property Tax Partners Editorial Team · 13 min read

The option to tax (OTT) under VATA 1994 Schedule 10 converts the default exempt treatment of a commercial property letting or sale into a standard-rated 20% VAT supply. It is the single most important VAT decision in commercial property, the entry-decision behind input-tax recovery on acquisition, refurbishment, and professional fees. The mechanic itself is statutory and unforgiving: VAT1614A within 30 days of the decision, a 6-month cooling-off window during which the option can be withdrawn on VAT1614C, automatic disapplication in defined dwellings, charity, housing-association, and connected-exempt-occupier cases, and a 20-year minimum life before voluntary revocation becomes available on VAT1614J. This guide sets out each step of the mechanic with the relevant Schedule 10 paragraphs.

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The default VAT position on UK commercial property letting is straightforward: the grant of any interest in or right over land is exempt under VATA 1994 Sch 9 Group 1. No VAT on rent, no input VAT recovery on acquisition or refurbishment, no VAT registration triggered by exempt commercial-letting income alone. For commercial landlords with material acquisition or refurbishment VAT to recover, that default is expensive. The statutory escape route is the option to tax under VATA 1994 Schedule 10.

This page sets out the OTT mechanic from election to revocation: the form, the 30-day notification clock, the 6-month cooling-off period, the dwellings and charity carve-outs, the connected-party anti-avoidance test, the real-estate election, and the 20-year revocation window. Where the option intersects with adjacent VAT regimes (Capital Goods Scheme, partial exemption, TOGC), the cross-references are flagged. The whole regime is statute-led: VATA 1994 Sch 10, supplemented by HMRC Notice 742A and the VAT Manual.

The Default Position: Commercial Property Letting Is Exempt

The grant of any interest in or right over land (including a lease, licence to occupy, or freehold transfer) is exempt from VAT under VATA 1994 Sch 9 Group 1 Item 1, subject to a list of exceptions (Notes 8 to 16). The main exceptions that remove a supply from the exemption (and so make it standard-rated by default, without any opt being needed) include:

Holiday accommodation (Note 9), standard-rated.
Hotel, inn, boarding house, and similar accommodation (Note 9), standard-rated subject to TOMS.
Parking spaces let separately from a dwelling (Note 10), standard-rated.
Storage facilities (Note 15A, post-October 2012), standard-rated.
Sport and leisure pitches with associated rights (Note 14), standard-rated.

For ordinary commercial-property lettings (offices, retail, industrial, warehouses, mixed-use) the exemption is the default. To convert that exempt supply into a taxable supply the landlord must take a positive step: the option to tax under VATA 1994 Sch 10 para 2.

What the Option to Tax Actually Does (and What It Does Not)

The option is a unilateral election by the person making the supply. It does not require HMRC's prior consent (in most cases) and it does not require the tenant's agreement. Once notified, the option:

Converts the grantor's future supplies of the specified property into standard-rated 20% supplies.
Allows the grantor to recover input VAT on costs attributable to those taxable supplies (acquisition VAT, refurbishment VAT, professional fees, agent commission).
Binds the grantor for a minimum of 20 years on that specific property (Sch 10 para 25).

The most-misunderstood feature of the OTT is what it does not do. The option binds the person who made it, not the building. When the opted property is sold, the option does not pass to the buyer. The buyer makes its own decision: opt (the typical commercial buyer's position) or accept exempt status (the typical residential-convertor or owner-occupier-exempt buyer's position). Three consecutive owners may hold the same property with three different VAT positions over time.

This personal-to-the-grantor design is also why the OTT interacts with VAT groups and partnerships in specific ways: an option made by a VAT group member binds the whole VAT group (Notice 742A section 2.7), an option made by a partnership binds the partnership as a separate VAT entity. Property held by trustees raises further questions covered in HMRC's Notice 742A section 13.

Making the Election: VAT1614A and the 30-Day Clock

The mechanics are tightly defined.

Make the underlying decision, formally documented. A board minute, a written advice file from your accountant, an email to your VAT adviser confirming the decision and the date.
Notify HMRC within 30 days on form VAT1614A. The form requires the property address, the date the option takes effect (which is the date of the decision or a future date you specify), and the signature of an authorised signatory. The form can be completed online and printed, or completed by hand, and is sent to the address on the form. Reference: gov.uk VAT1614A.
Retain HMRC's acknowledgement. HMRC issues a date-stamped acknowledgement on receipt; keep this together with the underlying decision evidence indefinitely.

The 30-day window matters for evidential reasons more than legal-validity reasons. A late notification can be accepted by HMRC under "belated notification" provisions in Notice 742A section 4.2 if the taxpayer can show: the decision was made on the earlier date, output tax was charged and accounted for on supplies from that date, and input tax claimed has been treated consistently. A late notification without that contemporaneous evidence is at HMRC's discretion and frequently refused.

The 6-Month Cooling-Off Period (Sch 10 Para 23)

Sch 10 para 23 provides a narrow window to undo an option made in error. The conditions, all of which must be met:

Less than 6 months have elapsed since the option took effect.
No VAT has yet been charged on a supply attributable to the option.
No transfer of going concern has happened in reliance on the option.
One of the following further conditions is satisfied: no input tax has been recovered specifically because of the option, OR any recovered input tax is fully adjustable, OR the recovered input tax falls within the de-minimis bounds of a single Capital Goods Scheme adjustment (a £250,000 building or £50,000 ship/aircraft equivalent).

Revocation in the cooling-off period is notified on form VAT1614C. Once the cooling-off window closes (and no further cooling-off window opens on the same property), the option is binding for 20 years.

The cooling-off period is a practical safety valve for taxpayers who opt prematurely and then realise the property's tenant covenant or planning trajectory has moved against them. Once the first VAT invoice has been issued or the first input VAT recovery has occurred under the option, cooling-off is unavailable.

Disapplication: When the Option Does Not Bite

The option does not produce a taxable supply in several defined situations. The supply reverts to exempt and the input VAT recovery falls away. The main disapplication categories:

Dwellings (Sch 10 Para 5)

Where the building (or part) is designed or adapted, and intended for use, as a dwelling or number of dwellings, the option is automatically disapplied. This is the carve-out that protects residential tenants in mixed-use buildings: the commercial element is opted, the residential element is not, and the landlord apportions input VAT accordingly.

Conversion for Use as a Dwelling (Sch 10 Para 6)

Where the buyer issues a VAT1614D certificate confirming they intend to convert the building to a dwelling or use it as a relevant residential building, the seller's option is automatically disapplied. This is the route most commonly used by residential developers buying commercial stock for permitted-development conversion. See our separate guide on VAT on new-build residential property for the conversion zero-rate that typically follows.

Relevant Charitable Purpose (Sch 10 Para 7)

Where the buyer or tenant issues a certificate confirming use of the property for a relevant charitable purpose (non-business activities of a charity, including buildings used as a village hall by the local community), the option is disapplied. The certificate must be issued before the supply is made.

Housing Associations (Sch 10 Para 10)

Grants by a relevant housing association to a tenant of property to be used as a dwelling or relevant residential building are disapplied. The exemption protects the housing-association tenant from absorbing irrecoverable VAT on rent.

Developer Anti-Avoidance (Sch 10 Paras 12-17)

The most operationally important disapplication for commercial landlords. Where the grantor was a developer of the land (or financier of the development, or connected to a developer or financier) and the "exempt land test" is met, the option is treated as never having effect on the supply.

The exempt land test (Sch 10 para 15 and 15A) bites where, at the time of the grant, the grantor or a development financier intended or expected that the land would be occupied for purposes other than eligible purposes. Eligible purposes (Sch 10 para 16) is essentially "taxable business use" plus a list of charitable and statutory exceptions. A connected occupier who can recover at least 80% of the VAT it pays is treated as occupying for eligible purposes; below 80% recovery and the disapplication bites.

In practice this catches commercial property opted to recover input VAT and then let to a connected exempt business (a connected bank, insurance broker, GP practice, dental practice, or other substantially-exempt occupier). HMRC scrutinises these arrangements carefully, and the option is treated as never having operated on the disapplied supply.

The Real-Estate Election (Sch 10 Paras 21-22)

A landlord acquiring property frequently and operating a large portfolio may find separate VAT1614As for each acquisition impractical. The real-estate election (REE) under Sch 10 para 21 lets a taxable person elect that any future acquisition of an interest in land or buildings (from the date of the election) is automatically opted, with a single up-front notification rather than individual property-by-property forms.

The REE is operationally efficient for institutional commercial landlords and property funds. It is not appropriate for landlords with a mixed acquisition strategy (some commercial, some residential, some intended for owner-occupation) because the automatic-opt rule sweeps in every land or building interest acquired after the REE date.

The REE itself is notified to HMRC in writing. Once made, each individual property covered by the REE is still treated as having a separate underlying option (with its own 20-year clock), but the upfront notification covers them all. A separate process is required to revoke the REE going forward (Sch 10 para 22).

Revoking the Option After 20 Years (Sch 10 Para 25)

An option to tax is binding for at least 20 years from the date it took effect. After 20 years a voluntary revocation route opens up under Sch 10 para 25, notified on form VAT1614J. The conditions:

20 years have elapsed since the option took effect.
The conditions in Notice 742A section 8 are met (broadly: no Capital Goods Scheme adjustments are still running, the property has not been the subject of recent significant input-VAT recovery, the taxpayer is up to date with VAT returns).
A separate, narrower route under Sch 10 para 24 allows revocation where the taxpayer has not held any relevant interest in the property for at least 6 years (this catches landlords who have sold out and want to clear the option from their record so future re-acquisition is exempt).

The 20-year revocation is rarely the planning-relevant route in practice because most opted property is sold (with TOGC or with a standard-rated sale) well before 20 years. The route matters mainly for institutional holders of long-life commercial assets (offices, industrial sheds, large mixed-use blocks) where the same legal owner has held the property for two decades.

Interaction with Transfer of Going Concern

The most common end-of-life event for an opted commercial property is a sale. The sale is by default a standard-rated supply at 20% by the seller, with input recovery by the buyer if the buyer is VAT-registered. Where the sale qualifies as a transfer of going concern under Article 5 of the VAT (Special Provisions) Order 1995, the supply is outside the scope of VAT entirely.

For TOGC to operate on opted commercial property the buyer must do two things by the relevant date (usually completion):

Be VAT-registered (or be required to register as a consequence of the transfer).
Notify its own option to tax on form VAT1614A, so the buyer's future use of the property is also taxable.

If the buyer fails on either limb, the TOGC collapses and the sale reverts to a standard-rated 20% supply by the seller. The seller is then liable for the VAT (often £200,000-£500,000 on a sub-£3m commercial deal), with predictable contractual fallout where the buyer assumed the sale was outside the scope of VAT. The buyer's own option must be notified by the relevant date; late notification does not retrospectively rescue a TOGC.

The full mechanic is set out in our guide to TOGC and VAT on property letting businesses, including the five-condition test and the failure modes.

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Worked Example: Refurbishment Recovery on a £2.4 Million Office

An anonymised mid-market commercial landlord owns a 1990s office building in a regional city centre held in a single-property SPV. The building is fully let to a single corporate tenant whose lease expires in 18 months. A £2.4 million strip-out and re-fit is planned to upgrade the building to EPC B-rated and bring it back to market at a 25% higher rent. Input VAT on the refurbishment is £480,000 at 20% standard-rate.

Scenario	Action	Input VAT recovered	Output VAT charged
No option to tax	Refurb invoiced inclusive; rent remains exempt	£0	£0
Option to tax filed before first refurb invoice	VAT1614A notified, input VAT recovered, future rent standard-rated	£480,000	20% of future rent
Option filed mid-refurb (some invoices already paid)	Pre-opt input VAT may be recoverable as pre-registration input tax under VAT Regulations 1995 reg 111; post-opt input VAT recovered as normal	£480,000 (subject to reg 111 conditions)	20% of future rent

The headline £480,000 input recovery is what makes the option compelling. The trade-off is that future rents are charged at 20% VAT to the tenant. If the next tenant is a VAT-registered taxable business (typical commercial occupier), the VAT is recovered by them and is cashflow-neutral. If the next tenant is a substantially-exempt business (financial services, healthcare, education, charity), the VAT is an absolute cost to them and will be reflected in a lower rent they will accept. The OTT decision should be made with the prospective tenant profile in view, not just the current input-VAT recovery prize.

Worked Example: Connected-Party Disapplication Trap

A second anonymised landlord acquires a mixed-use building (ground floor retail unit, four flats above) for £1.6 million plus £320,000 VAT. The landlord opts to tax on the retail unit and recovers the £320,000 input VAT in full. The retail unit is let to a connected family-trust trading entity carrying on a private dental practice (substantially VAT-exempt).

Two months later HMRC opens a routine VAT enquiry. The connected dental-practice tenant's VAT recovery is well below the 80% threshold under Sch 10 para 16. HMRC applies the exempt land test under Sch 10 paras 12-17: the option is treated as never having had effect on the supply. The £320,000 input VAT recovery is reversed in full, with interest and a penalty under FA 2007 Sch 24 for a careless inaccuracy.

The simple structural cure (which would have preserved the recovery) was for the connected dental practice to occupy under an arm's-length sub-lease from an unconnected operating company, breaking the connected-party chain. The cost of that re-papering is typically £8,000-£15,000 of legal and tax advisory time. The cost of getting it wrong was £320,000 plus interest and penalties.

Decision Summary

The OTT decision is fact-specific. The headline question is whether the input-VAT recovery prize outweighs the costs of imposing 20% VAT on prospective tenants and the 20-year tie-in. The standard decision matrix:

Situation	Typical OTT position
Newly-acquired commercial property with material acquisition VAT to recover and VAT-registered taxable tenants in view	Opt
Owner-occupier acquiring a single trading premises (no third-party rent)	Opt if the business is VAT-registered and the acquisition VAT recovery exceeds the SDLT-on-VAT cost
Commercial property with substantially-exempt prospective tenants (banks, GPs, dentists, charities)	Generally do not opt; recovery prize is offset by lower achievable rents
Mixed-use property with dwellings above	Opt on the commercial element only; Sch 10 para 5 protects the dwellings
Property to be sold to a connected exempt occupier	Do not opt; the option is void under Sch 10 paras 12-17
Property held through a VAT group with intra-group lets	Group transparency rules apply; analyse with care, may not need to opt at all
Refurbishment project with input VAT and uncertain future tenant profile	Quantify the recovery, model two tenant scenarios, decide before the first invoice is paid

Common Pitfalls

Filing VAT1614A late and assuming HMRC will backdate. Belated notification is at HMRC's discretion and requires contemporaneous evidence; without it, the option's effective date moves forward and pre-opt input VAT is lost.
Forgetting the connected-party 80% rule before opting. The exempt land test under Sch 10 paras 12-17 voids the option from day one; the recovery is reversed retrospectively with interest and penalties.
Treating the option as "attached to the property". It is not. The option binds the grantor only. A buyer of opted property makes its own decision and must file its own VAT1614A by the TOGC relevant date if the parties want to TOGC the sale.
Issuing rent invoices VAT-exclusive when the property has been opted. The supply is taxable; under-stating output VAT is a recoverable HMRC assessment with interest.
Cooling-off attempted after input VAT has already been recovered. Cooling-off under Sch 10 para 23 requires no material input VAT to have been recovered under the option. Recovery and cooling-off are usually mutually exclusive.
SDLT under-paid on the VAT-exclusive consideration. SDLT is calculated on the VAT-inclusive price; the buyer must include the 20% VAT in the SDLT base on opted property unless the sale qualifies for TOGC.
Not retaining HMRC's date-stamped acknowledgement. The acknowledgement is the buyer's evidence on resale 10 to 15 years later that the option was in place; without it, the buyer's TOGC analysis becomes fragile.

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Frequently asked questions

What does the option to tax actually do?: It overrides the default VAT exemption on a specific commercial property (or piece of land) and converts future supplies of that property into standard-rated 20% VAT supplies. The legal mechanism is an election to waive exemption under VATA 1994 Sch 10 para 2. Once made, the property's rents, service charges, and sale proceeds become VATable, and the landlord can recover input VAT on costs that relate to those supplies (acquisition VAT, refurbishment VAT, agent fees, professional fees).
Does the option to tax attach to the property or to me?: To you. This is the single most-misunderstood point about OTT. The option binds the person (or VAT group, or partnership) who made it, not the building. When you sell the property the option does not pass to the buyer automatically. The new owner makes their own opt decision (or accepts an exempt sale under the disapplication-on-TOGC rules). Two consecutive owners can hold the same building with opposite VAT positions: one opted (taxable), one not (exempt).
How long do I have to tell HMRC after deciding to opt?: Normally 30 days. You make the underlying decision (a board minute, a written file note, an email to your accountant) and then notify HMRC on form VAT1614A within 30 days of that decision. Late notifications are sometimes accepted if you can prove the decision was made on the earlier date and you have charged output tax and recovered input tax consistently. HMRC will scrutinise late notifications and may refuse to backdate.
Can I opt to tax part of a building only?: Yes, in defined circumstances. Sch 10 para 2 lets you opt over a building, a piece of land, or a part of a building that is structurally separate (a single floor, a single suite). You cannot opt over an arbitrary tenant lease alone, but you can opt selectively across a portfolio of separately identifiable units. Where a property has a mixed-use element (commercial below, residential above), the option is automatically disapplied in respect of the dwellings under Sch 10 para 5.
Can I change my mind after making the option?: There are three withdrawal routes, each with conditions. The 6-month cooling-off period under Sch 10 para 23 lets you revoke the option (form VAT1614C) provided no tax has yet been charged on a supply, no transfer of going concern has happened, and you have not recovered significant input tax under it. Outside the cooling-off period the option is binding for 20 years (Sch 10 para 25). After 20 years you may apply to revoke on VAT1614J subject to further conditions. A third, narrower route allows revocation where you have not held a relevant interest in the property for at least 6 years (this catches landlords who have sold out).
Does the option to tax cover residential parts of a mixed-use property?: No. Sch 10 para 5 carves out dwellings: where a building is designed or adapted (and intended for use) as a dwelling or number of dwellings, the option does not bite on those parts. A mixed-use building (shop with flat above, pub with flats above) is opted on the commercial element only. The residential rent remains VAT-exempt regardless of the opt. Apportionment between the commercial and residential elements is required on purchase price, refurbishment cost, and ongoing input VAT (the partial-exemption rules then govern how much of the input VAT you recover).
What is the connected-party 80% rule?: Where the property is sold or let to a person connected with the grantor (within the s.1122 CTA 2010 / s.839 ICTA 1988 sense), and the connected occupier is not expected to recover at least 80% of the VAT it pays, the option can be automatically disapplied under Sch 10 paras 12-17 anti-avoidance rules. The mechanism (the 'exempt land test') treats the option as never having effect, the supply reverts to exempt, and the grantor cannot recover input VAT. In practice the rule catches opted property let to connected financial-services, healthcare, education, or charity entities that are themselves substantially VAT-exempt.
Do I need HMRC's permission to opt to tax?: Usually no. Most opt-to-tax notifications are made under 'automatic permission' which means HMRC does not need to consent. Prior permission is only required in defined circumstances (typically where you have already made exempt supplies of the property in the past 10 years, or where complex connected-party arrangements are involved). Where prior permission is required you apply on VAT1614H rather than VAT1614A. Notice 742A section 5 sets out the automatic-permission conditions in full.
How does opting to tax interact with SDLT on a sale?: SDLT is calculated on the VAT-inclusive consideration. If you sell a £1,000,000 opted commercial property to a buyer who pays £1,200,000 including VAT, the buyer's SDLT base is £1,200,000 (not £1,000,000). For commercial property at 2026/27 SDLT rates this changes the buyer's bill noticeably (5% over £250k threshold). The buyer recovers the input VAT through its own VAT registration but the SDLT cost is a sunk cost not recoverable. This is one of several reasons commercial buyers prefer to negotiate TOGC treatment where possible.
What happens to the option to tax when I sell my opted property to a VAT-registered buyer?: Two routes. Default: the sale is a standard-rated supply by you (20% VAT charged on consideration). The buyer pays VAT, then recovers it if VAT-registered and the buyer in turn opts on the property. Alternative route: the parties meet the TOGC conditions under Article 5 VAT (Special Provisions) Order 1995, in which case the sale is outside the scope of VAT entirely (no VAT charged). For TOGC to apply on opted commercial property the buyer must (a) be VAT-registered, and (b) have notified its own option to tax by the relevant date (usually completion). Failure on either limb collapses the TOGC and reinstates the 20% VAT charge. See our TOGC guide for the full five-condition test.
Does my option to tax bind a buyer after sale?: No. Your opt is personal to you and does not transfer with the property. The buyer makes its own decision. Where the parties intend a TOGC, the buyer must notify its own VAT1614A by the relevant date (usually completion); if it does not, TOGC collapses and the sale becomes VATable. This is the most common failure mode in TOGC on commercial property: parties assume the seller's opt carries through, the buyer files late or not at all, HMRC retrospectively assesses 20% VAT, and a contractual dispute follows.
What evidence do I need to keep to prove I opted to tax?: Keep the underlying decision document (board minute, written advice, contemporaneous file note) and the HMRC acknowledgement of the VAT1614A. HMRC's evidence-of-option register exists but is not always conclusive on its own. Tax practice is to retain both the original notification (with date-stamped HMRC reply) and the underlying decision evidence for the full life of the option, plus a further 6 years after revocation. Capital Goods Scheme adjustments may run for 10 years from acquisition and rely on the option being demonstrably in place.
How does the option to tax interact with the Capital Goods Scheme?: Closely. The Capital Goods Scheme (CGS) runs for 10 intervals on standard-rated capital expenditure of £250,000 or more on land and buildings (VAT-exclusive). The initial recovery rate at acquisition is determined by your taxable-supplies use (heavily influenced by whether you have opted). If your use of the property changes during the 10-year CGS period (you stop opting on a new building, you change tenant mix, a disapplication event occurs), each annual interval requires a recalculation and an adjustment of the original VAT recovery. The OTT election sits upstream of the CGS bite; revoking or losing the option mid-cycle is the most common trigger for material CGS clawback. See our separate guide on the Capital Goods Scheme for the 10-interval mechanic.

VAT Option to Tax Commercial Property: Mechanics, Cooling-Off and Revocation

The Default Position: Commercial Property Letting Is Exempt

What the Option to Tax Actually Does (and What It Does Not)

Making the Election: VAT1614A and the 30-Day Clock

The 6-Month Cooling-Off Period (Sch 10 Para 23)

Disapplication: When the Option Does Not Bite

Dwellings (Sch 10 Para 5)

Conversion for Use as a Dwelling (Sch 10 Para 6)

Relevant Charitable Purpose (Sch 10 Para 7)

Housing Associations (Sch 10 Para 10)

Developer Anti-Avoidance (Sch 10 Paras 12-17)

The Real-Estate Election (Sch 10 Paras 21-22)

Revoking the Option After 20 Years (Sch 10 Para 25)

Interaction with Transfer of Going Concern

Want this checked against your specific situation?

Worked Example: Refurbishment Recovery on a £2.4 Million Office

Worked Example: Connected-Party Disapplication Trap

Decision Summary

Common Pitfalls

Authorities

Have a specialist property tax question?

Frequently asked questions

A Complete Guide to the Community Infrastructure Levy (CIL): Statutory Location, Calculation, Reliefs, and the s.106 Overlay

Big Tax Changes Ahead for Furnished Holiday Lettings

Council Tax for New Builds: When Liability Begins, the s.17 Completion-Notice Machinery, and the Valuation Tribunal Appeal Route

The Default Position: Commercial Property Letting Is Exempt

What the Option to Tax Actually Does (and What It Does Not)

Making the Election: VAT1614A and the 30-Day Clock

The 6-Month Cooling-Off Period (Sch 10 Para 23)

Disapplication: When the Option Does Not Bite

Dwellings (Sch 10 Para 5)

Conversion for Use as a Dwelling (Sch 10 Para 6)

Relevant Charitable Purpose (Sch 10 Para 7)

Housing Associations (Sch 10 Para 10)

Developer Anti-Avoidance (Sch 10 Paras 12-17)

The Real-Estate Election (Sch 10 Paras 21-22)

Revoking the Option After 20 Years (Sch 10 Para 25)

Interaction with Transfer of Going Concern

Want this checked against your specific situation?

Worked Example: Refurbishment Recovery on a £2.4 Million Office

Worked Example: Connected-Party Disapplication Trap

Decision Summary

Common Pitfalls

Related Reading

Authorities

Have a specialist property tax question?

Frequently asked questions

Related articles

A Complete Guide to the Community Infrastructure Levy (CIL): Statutory Location, Calculation, Reliefs, and the s.106 Overlay

Big Tax Changes Ahead for Furnished Holiday Lettings

Council Tax for New Builds: When Liability Begins, the s.17 Completion-Notice Machinery, and the Valuation Tribunal Appeal Route