Option to tax applied on basis land was exempt

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 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 said under the option to tax disapplication rules because the company was connected and was using the capital item for a mixture of taxable and exempt activities the option to tax should have been disapplied. HMRC agreed to refund the VAT that had been overcharged on the lease. In 2014 the appellant 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...