The Value Added Tax (Amendment) (No. 3) Regulations 2002

Explanatory Note

(This note is not part of the Regulations)

These Regulations, which come into force on 28th November 2002, further amend the Value Added Tax Regulations 1995 (S.I. 1995/2518) (“the principal Regulations”).

These Regulations restrict the application of regulation 84(2) of the principal Regulations (“regulation 84(2)”) in order to prevent avoidance. Regulation 84(2) applies where the grant or assignment of the fee simple (the freehold) of land is made for a consideration the amount of which cannot be fully determined at the time the grant or assignment is completed.

Regulation 1 applies the changes below to grants or assignments of freehold land made on or after 28th November 2002.

Regulation 3 makes the application of regulation 84(2) subject to new paragraphs (3) to (9), added to that regulation.

Regulation 4 adds new paragraphs (3) to (9) to regulation 84 of the principal Regulations as follows.

Paragraph (3) prevents the regulation 84(2) treatment applying to sales of land including a new or incomplete commercial building or civil engineering work, or land on which the grantor expects to construct such a building or work. However, this does not apply to sales that satisfy the conditions in paragraph (4).

Paragraph (4) sets out the conditions under which paragraph (3) does not apply. First, the grantor must elect to waive exemption (opt to tax) on the land before the grant is made. Secondly, that election must not be disapplied under existing option to tax anti-avoidance legislation applying to capital items.

Paragraph (5) provides that for the purpose of deciding whether the second condition contained in paragraph (4) is fulfilled, the land, building or civil engineering work is treated as if it were a capital item even if it is not.

Paragraph (6) adopts existing VAT law definitions of when a building or work is new and when it is completed.

Paragraph (7) prevents paragraph (3) applying to non-commercial buildings (dwellings, residential buildings, village halls and buildings used by charities for non-business purposes).

Paragraph (8) adopts existing VAT law definitions for this purpose.

Paragraph (9) includes in the term “grantor” anyone that the grantor expects to acquire the right to receive the consideration that is not determinable. This prevents the provisions of paragraph (3) being avoided by transferring the grantor’s interest in the sale contract to another person.