On 15 June 2018, the First-tier Tribunal held2 that the rules3 which dis-apply an option to tax in certain cases, were not triggered.
The taxpayer had opted to tax a property, which was then leased to a party “connected” with the taxpayer. Such connected party occupied the land other than for (substantially) wholly “eligible” purposes4 . The taxpayer subsequently sold the property subject to the lease and – in reliance upon paragraph 12 of Schedule 10 – did not charge VAT.
The Tribunal’s view was that the purpose of the option dis-application rules was “less than clear”, and also highlighted the circularity of the rules. In particular this circularity arises where the land that is sold is not a CGS item for the seller, but becomes a CGS item for the buyer. In such cases the seller’s option to tax would be dis-applied, resulting in the supply becoming VAT-exempt, which in turn means that the item would not be a CGS item for the buyer.
The tribunal found that, at the date of the sale, the taxpayer knew that the supply would not be taxable. As this meant that the taxpayer could not have intended for the property to become a CGS item for the buyer, the option dis-application provision could not have been engaged. The Tribunal also agreed with HMRC that, despite the fact that the relevant part of the legislation was headed “anti-avoidance”, the motive of the taxpayer was irrelevant.
The decision can be viewed here.