VAT Option to Tax Commercial Property

VAT Option to Tax Commercial Property UK 2026 — HMRC VAT Notice 742A, When to Opt, TOGC, Disapplication and 20-Year Revocation Rule

VAT option to tax (OTT) commercial property UK 2026: default position — land and property is VAT exempt (VATA 1994 Schedule 9 Group 1); no output VAT on rent; no input VAT recovery on construction/refurbishment costs. OTT election (HMRC form VAT 1614A; notify within 30 days): converts building to 20% standard-rated; landlord recovers input VAT on all costs. TOGC: buyer must notify HMRC of their own OTT BEFORE completion or 20% VAT applies to entire purchase price. Disapplication: OTT disapplied for residential converters (buyer provides zero-rating certificate). 20-year revocation rule (6-month cooling-off from election date).

11 min readUpdated 7 June 2026Last reviewed: 17 May 2026vatcommercial-propertyoption-to-taxtogc

Default VAT exempt position and effect of the OTT election

Default position (VATA 1994 Schedule 9 Group 1): sale and letting of land and property is VAT exempt — no output VAT on rent; no input VAT recovery on construction, refurbishment, or professional costs. OTT election (HMRC form VAT 1614A; notify within 30 days of decision to opt): converts the specific building to 20% VAT standard-rated — rents and sale proceeds carry 20% VAT; the landlord recovers input VAT on all costs relating to the opted property. OTT applies to a specific building — opting one building does not opt others. 20-year revocation rule: OTT cannot generally be revoked for 20 years (6-month cooling-off period from election date — if no taxable supply made in that period, revocation is possible).

TOGC, buyer OTT obligation, disapplication for residential converters and automatic disapplication

TOGC: sale of commercial investment property with tenants in place may qualify as Transfer of Going Concern — no VAT on purchase price even if seller has an OTT
Buyer OTT obligation: where seller has OTT, buyer MUST notify HMRC of their own OTT on form VAT 1614A BEFORE completion — missed notification fails the TOGC and triggers 20% VAT on entire purchase price
Disapplication (residential conversion): OTT automatically disapplied where buyer intends to convert to residential and conversion is zero-rated — buyer provides written disapplication certificate; seller cannot charge VAT
Automatic disapplication: domestic dwellings; charitable buildings used for relevant charitable purposes; buildings in course of construction/conversion for residential or charitable use

Why landlords opt (and why they do not)

SHOULD OPT: significant refurbishment/construction costs — input VAT recovery very valuable; tenants are fully VAT-registered businesses (VAT on rent is a passthrough — no real cost to tenants); planned sale to VAT-registered investment buyer
SHOULD NOT OPT: tenants make exempt supplies (banks; insurance; hospitals; GP surgeries; schools — cannot recover VAT on rent; 20% VAT on rent is a real permanent cost making the property less competitive); minimal capex planned; anticipated sale to residential converter (OTT would be disapplied anyway)

Frequently asked questions

What is the VAT option to tax on commercial property?+

The option to tax (OTT) is a voluntary VAT election (HMRC form VAT 1614A; notify within 30 days) that converts a specific commercial building from VAT-exempt to 20% standard-rated. Default: land/property is VAT exempt — no output VAT on rents; no input VAT recovery on costs. After OTT: rents and sale proceeds carry 20% VAT; the landlord can recover all input VAT on costs (construction; refurbishment; professional fees; management fees).

What is the TOGC rule for commercial property and the buyer OTT requirement?+

A TOGC (Transfer of Going Concern) on a commercial investment property with tenants in place is not subject to VAT even if the seller has an OTT — provided the buyer also notifies HMRC of their own OTT BEFORE completion. A missed buyer OTT notification at completion fails the TOGC: the seller must charge 20% VAT on the entire purchase price — potentially a very large irrecoverable cost. This is one of the most critical commercial property conveyancing checks.

Is the OTT disapplied for sales to residential converters?+

Yes — the OTT is automatically disapplied where the buyer intends to convert the opted commercial property to residential use and the conversion qualifies for VAT zero-rating (VATA 1994 Schedule 8 Group 5). The buyer provides a written disapplication certificate. The seller cannot charge VAT on the sale price even with an active OTT.

Templates recommended in this guide

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Landlord Annual Compliance Checklist

Annual walk-through of every compliance touchpoint: gas, electrical, EPC, smoke/CO, Right-to-Rent, deposit, licensing, database registration.

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