Condition must be satisfied at the time of the grant

In May 2001 the taxpayer bought a property on which the seller had opted to tax. The taxpayer then opted to tax the property and leased the building to a connected person (OE) whose services were exempt accounting for output tax on the lease. Because the value of the property was more than £250 000 it was a capital item in the taxpayer’s hands. In 2007 HMRC told the taxpayer he should not have been charging VAT to OE because the rent was exempt. HMRC agreed to refund the VAT that had been overcharged on the lease. In 2014 the taxpayer sold the property to a third party with the benefit of the lease and did not account for VAT on the sale on the basis the option to tax had been disapplied. HMRC said there was an option to tax on the property...