Options to Tax: HMRC no longer acknowledging receipt

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HMRC has stopped issuing option to tax notification receipt letters and will no longer provide confirmation regarding existing options to tax, except in limited circumstances.

Back to basics

Supplies of land and buildings, such as lettings and freehold sales, are often exempt from VAT (although there are some important exceptions).  If the supply of land and buildings is exempt, this means that no VAT is payable on the supply. However, it also means that the person making the supply cannot normally recover any of the VAT incurred on their own expenses.

A business can “opt to tax” its commercial property interest, so that supplies are standard-rated, allowing for recovery of associated VAT costs. An option to tax is personal and does not pass with the property; an option to tax by one person cannot therefore bind a person who has a separate interest in the land.

Opting to tax is a two stage process. First, the decision to opt the property must be taken. The second stage is to notify HMRC in writing within 30 days of that decision.

Notifying HMRC

Previously, when notified of a decision to opt to tax a property, HMRC would acknowledge this notification and check its validity. This acknowledgement from HMRC was often relied upon as evidence of the property being opted to tax in subsequent property transactions. However, as of 1 February 2023, HMRC will no longer provide an option to tax notification receipt letter.  

Now, to notify HMRC of a decision to opt, a notification email should be sent to optiontotaxnationalunit@hmrc.gov.uk with the property’s address (including postcode) and the effective date of the option to tax notification in the subject header.

When a notification is sent via email, a receipt will automatically be generated which will include the date that the notification was received by HMRC. This, along with appropriate proof of sending, should be considered adequate evidence of the option being made for property transaction purposes. A notification sent other way than by email, will no longer get an acknowledgement from HMRC (although HMRC may request further information). 

Confirming the option to tax 

Property owners may be unaware if they have exercised the option to tax in relation to a particular property interest in the past, and being able to confirm it can be key to a property transaction.

Prior to 1 February 2023, if a person was unsure whether a property was opted, they could write to HMRC and ask if it held a record of an option to tax for the property. HMRC would then respond to confirm if it held any such records. As of 1 February 2023, HMRC will no longer respond to inquiries about the existence of such records, except where:

  • the option to tax was likely exercised more than six years ago, or
  • the person making the inquiry is serving as an LPA receiver or an insolvency practitioner for the property.

HMRC has emphasised that it is the responsibility of taxpayers to maintain accurate records of their tax affairs for at least six years.

Some real estate sale and purchase contracts may need to be reworded and warranties revisited to address historic uncertainties.

Going forward taxpayers should:

  • verify the validity of any intended option to tax by seeking expert advice and/or consulting HMRC’s VAT guidance;
  • submit the notification to HMRC's email address in order to obtain an automated receipt; and
  • maintain complete records of all options to tax, along with copies of relevant documents including any relevant proof of sending.

For more information, please contact Teifi Warner or Andrew Roberts.

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