Option to tax

The charity bought a property with an option to tax election but it certified to the seller that the option should be overridden because the building was to be used for a relevant charitable purpose.

HMRC disputed the validity of the certificate on the basis that two-thirds of the property was rented to independent tenants for exempt rent and that educational studies carried out in the rest of it were made in return for fees. It was to be used in effect for business purposes and VAT should have been charged on the property sale.

The charity argued that the temporary letting of rooms was linked to its charitable activities and was not intended to be a source of business income. The money would be used to offset the institute’s overheads; in this way the trustees were complying with their obligations to minimise costs. The teaching activity was the...