Value Added Tax Act 1994 section Schedule 10 paragraphs 12–17

Anti-avoidance: developers of exempt land

Section Schedule 10 paragraphs 12 to 17 set out anti-avoidance rules that prevent developers and their financiers from using the option to tax to recover input VAT on land and buildings that are ultimately destined for exempt occupation by connected parties.

• Where a developer grants an interest in land and it is intended or expected that the land will become or remain "exempt land" (i.e. occupied by a connected party mainly for non-creditable purposes), the option to tax is overridden and the supply remains exempt.
• The rules catch not only the developer (grantor) but also any "development financier" — broadly, anyone who funds the development expecting the land to end up in exempt use — and persons connected with either of them.
• Land qualifies as "exempt land" if, at any point during the capital goods scheme adjustment period, a relevant person occupies it other than wholly or substantially wholly for the purpose of making taxable supplies that carry a right to input tax credit, subject to limited de minimis exceptions for buildings.
• Transitional provisions protect grants made before 26 November 1996 (or under pre-existing written agreements before 30 November 1999) and include a special deemed-date rule for grants made between 19 March 1997 and 9 March 1999.

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