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A new Sch 10 to VATA 1994 becomes effective from 1 June 2008 following the announcement in the 2008 Budget.
Schedule 10 deals primarily with the option to tax supplies of land and buildings and, following a series of amendments needed to block various avoidance schemes, has become increasingly more complex to follow.
The new schedule has been rewritten in the tax law rewrite style, which greatly improves the layout of the legislation as well as simplifying the language.
In addition, in 1995 changes were made to Sch 10 that allowed revocation of an option to tax 20 years after it had been made. This means the first options eligible for revocation will take place in 2009.
This new legislation therefore also includes the rules for revocation and also some changes necessary for its smooth operation.
HMRC are also publishing an information sheet 03/08 which includes guidance for the changes, together with the tertiary legislation (elements of the guidance which have the force of law). It also includes destination and derivation tables to help business navigate its way around the changes.
The following areas have changed or are new:
- new rules for relevant associates;
- introduction of certificates to disapply an option to tax for buildings to be converted into dwellings and land supplied to housing associations;
- introduction of disapplication of the option to tax for intermediaries supplying buildings to be converted into dwellings, etc.;
- revised definition of occupation, including a new exclusion for automatic teller machines;
- introduction of a new way to opt to tax (a real estate election) which does not require individual notifications of each option;
- extension and changes to the cooling-off period;
- automatic revocation of an option to tax after six years if no interest has been held in a property during that time;
- introduction of rules governing the revocation of an option to tax after 20 years;
- provision that, in future, an option to tax applies to both the land and buildings on the same site, with a special transitional rule for existing options;
- a new ability to exclude a new building and land within its curtilage from an option to tax;
- new appeal rights;
- repeal of legislation concerning the developer's self-supply charge and developmental tenancies (VATA 1994, Sch 9 Group 1 Item 1(b)) and also co-owners of land (s 51A).
In addition, a small number of taxpayers, typically large taxpayers, have what has become known as a global option to tax.
This is effectively an option on the whole of the UK, and is typically expressed as: 'I opt to tax the whole of the UK' or more commonly 'I opt to tax all the land I currently own and all that I acquire in the future'.
While there is no problem with retaining these global options, HMRC have in some cases, by concession, allowed the cooling-off period to apply to each property as it is acquired.
Under the normal rules, the cooling-off period can only apply to the option to tax itself and so should expire three months after the option was made (extended to six months from 1 June 2008).
Because of the introduction of the new real estate election, this concession will be withdrawn with effect from 31 July 2009.
This should allow sufficient time for those with a global option to decide whether to retain it without a cooling-off period in future, or to convert their global option into a new real estate election.
