VAT on commercial property

The 20-Year Rule: How Long an Option to Tax Lasts

PropertyVAT Team · Updated 21 October 2026 · 3 min read

An option to tax is one of the longest-lived decisions in commercial property. Twenty years is longer than most ownerships, most management teams, and most people's memory of why the decision was taken.

The basic position

Once an option to tax takes effect, it generally lasts 20 years and cannot simply be withdrawn because circumstances changed.

There are two windows where it can end:

The cooling-off period. Shortly after the option takes effect there is a limited window in which it can be revoked, subject to conditions — broadly, that you have not yet obtained a benefit from it and the property has not changed hands.

After 20 years. Revocation becomes possible once the option has been in place for 20 years, again subject to conditions. It is not automatic; you have to act.

Between those two points, assume you are committed.

Why this matters more than it sounds

It outlives the reasoning. An option made in year one to recover VAT on a refurbishment still binds in year fifteen, when the building, the tenants and the strategy have all changed.

It can narrow your tenant market. Charging VAT on rent is neutral for a taxable tenant and a straight 20% cost increase for an exempt one — a charity, an insurance broker, a healthcare provider. An opted building competes for a smaller pool of occupiers, for two decades.

It affects your exit. When you sell, you must charge VAT. That obliges your buyer to fund 20% and pay stamp duty on the VAT-inclusive price. Some buyers will discount for it; some will walk.

It interacts with the Capital Goods Scheme. On larger properties, recovery is revisited over ten intervals. A change in use — or the option being disapplied — can trigger adjustments years later.

The option does not transfer

This is the point that costs deals, and it is worth repeating in this context.

When you buy an opted property, the seller's option obliges them to charge you VAT. It does not make you an opted owner. If you want to charge VAT on rent, or you need the purchase to qualify as a TOGC, you must make and notify your own option.

Which means every opted building generates a fresh 20-year decision for each successive owner.

Historic options

Because options last so long, they routinely outlive institutional memory.

A company that acquired a building through a group reorganisation, or that has owned it since before the current finance team arrived, may genuinely not know an option exists. It surfaces when a solicitor checks the files during a sale.

This is exactly why a buyer should ask for the notification and HMRC's acknowledgement rather than accepting an assurance. A seller who can produce the paperwork knows their position. One who cannot may simply not have looked.

Before you opt

Because you are deciding for two decades, not for this transaction:

1. Why are you opting? If it is to recover VAT on a specific project, quantify that against the long-term cost.
2. Who are your likely tenants over 20 years? If exempt occupiers are a realistic part of that market, opting narrows it.
3. What is your expected exit? An opted building imposes a funding requirement on your buyer.
4. Is there an alternative? Sometimes a different holding structure achieves the recovery without opting.
5. Record the decision and the paperwork properly — including for whoever holds this asset in fifteen years.

That last point costs nothing now and saves a great deal later. Keep the notification, the acknowledgement and a note of the reasoning somewhere that survives a change of adviser.

This guide is general information, not tax advice. Revocation rules are conditional and technical — take specialist VAT advice before opting or attempting to revoke.