What is the status of the granting of an option to acquire land? And its surrender? The answer should be easy, on the face of it, in that it has always been established policy and practice that the grant of an option to acquire land is an exempt supply of land, unless the grantor has opted to tax.However, despite published policy reflecting this, HMRC seems to be having second thoughts.
In the First Tier Tribunal case of Landlinx Estates Ltd (2020 TC 07706), HMRC challenged the exemption of a surrender of an option to purchase land. Whilst their challenge was unsuccessful, it is worrying to note that HMRC are prepared to ignore their own guidance and attempt to reinvent the rules at a taxpayer’s expense.
If Landlinx had lost their appeal, and it had been found on the contrary that surrendering an option to purchase land was a taxable, rather than an exempt supply, they would have been seriously penalised as the wording of the contractual documentation precluded the addition of VAT to the consideration payable.
The judge commented that, should the appeal have gone the other way, he would not been able to adjudicate as the contractual position between the parties would not have been within the jurisdiction of the Tribunal. He further commented that had the appeal decision gone otherwise a ‘very real unfairness would have been visited upon Landlinx’
Perhaps this is a reminder that VAT is ever-present, even if it not mentioned in the contractual documentation!
As for HMRC changing policy at will, it is to be hoped that this was an isolated case.
If this case has implications for you, contact Just VAT for an initial discussion free of charge.
Email: phil.jeffrey@justvat.co.uk
