Property owners and landlords (including NHS bodies) are now able to revoke an Option To Tax in order that sales and lettings of a property can revert to being exempt from VAT. This may lead to opportunities for certain NHS bodies which opted property at the inception of the Option To Tax regime.

The Option To Tax was introduced on 1 August 1989. It allows businesses ( as well as NHS bodies making business supplies ) to elect to charge VAT on supplies of a commercial property, thus allowing VAT recovery on related costs such as construction or refurbishment.  Without the option, supplies made involving a commercial property would be exempt from VAT and the recovery of VAT on related costs would only be possible if it fell below the de-minimis level of VAT.

An option can be revoked where more than 20 years have elapsed since it was first given effect. Therefore, for an owner who had opted to tax a property on or around 1 August 1989, the first opportunity to remove it has arrived. The revocation of an option may benefit an NHS body which owns property it wishes to sell or let.

For example, if an NHS body decides to sell one of its properties where the option has been revoked, it will not have to charge VAT.  This will benefit a potential buyer who is unable to recover the VAT. ( e.g., a GP clinic, a private hospital, charity or an education provider).

Alternatively, a tenant who cannot recover VAT may view the rental of a property, where the option has been revoked, as a more attractive choice than renting another building which may have an option in place.

Land and Property is a very complicated area of VAT.  Therefore before making the decision to revoke an Option To Tax, an NHS body must fully understand the ramifications.  Please feel free to contact us if you need more specific advice.