Simplifying the VAT land exemption: Summary of responses

HMRC have published a summary of responses to their Call for evidence, ‘Simplifying the VAT Land Exemption’, which closed earlier this year.

The Call for evidence invited views to assess potential options for the simplification of the land and property VAT exemption. Supplies of land and property are exempt from VAT, subject to fifteen exceptions and twenty-six notes. It was split into two sections:

• The factors that drive the need for simplification.
• The possible solutions for the issues identified. 

73 responses were received from a broad range of respondents including businesses, advisers, trade bodies and individuals.  

• Most responses were in favour of some simplification to existing rules, although a number felt the current rules are understood and work well.
• The majority of responses urged caution over sweeping changes to the current rules: targeted simplification in specific areas was preferred.
• Current difficulties identified included the Option to tax anti-avoidance rules, mixed-use developments and short term arrangements such as conference facilities where is unclear if the supply should be treated as a property letting or as the provision of facilities.
• Suggestions previously Made and discounted by the OTS were rejected by a majority of respondents. These suggestions included removing the option to tax or making all commercial land and property taxable with an option to exempt.
• Most respondents disliked the idea of linking the VAT liability of interests in land to those recorded in land registers.

Suggestions given by respondents for simplifying the existing rules included:

• Reforming the option to tax anti-avoidance legislation.
• Maintaining a real-time accessible public record of land and property which has been opted.
• Shortening the option to tax revocation period to 10 years.

Next steps

In reply, the Government have confirmed:

• No further action will be taken regarding any of the potential options previously discounted by the OTS.
• Linking VAT treatment to an independent land register will not be considered further.
• A working group has been set up by HMRC which aims to produce updated guidance.

Further discussion with businesses will begin in the early part of 2022:

• HMRC will explore whether a workable definition of ‘short term’ or ‘minor interests’ can be established, with a view to making such supplies subject to VAT.
• The Government will discuss further the implications of making most supplies of land subject to VAT with a limited number of exceptions.
  • This proposal was something respondents were largely opposed to.
  • The Government wants to understand the challenges and possible unintended consequences, before making any decisions.

Useful guides on this topic

Call for Evidence: Simplifying the VAT land exemption
HMRC have issued a new call for evidence, 'Simplifying the VAT Land Exemption' which seeks views on the VAT rules relating to land and property and how they may be simplified.

Land & Property VAT (Subscriber guide)
An outline of the VAT treatment of some of the more common supplies of land and property.

Land & Property: Dwellings
What is a dwelling for VAT purposes? What is the VAT treatment for construction, conversion, sale, and letting of a dwelling?

Land & Property: Non-residential
This guide considers the VAT treatment of the supply of non-residential property.

Opting to tax land and property
What is an option to tax? What do I need to do to opt to tax? What happens if I buy an opted property?

Land & Property VAT at a glance
A summary of VAT on common land and property transactions.

Land & Property: Relevant residential & relevant charitable purpose
What are the VAT rules for land and property that is used for a relevant residential purpose or a relevant charitable purpose? What are the claw back provisions affecting change of ownership or use?

External link

Consultation outcome: Call for Evidence: Simplifying the VAT Land Exemption