Land Promotion – What are the key VAT considerations ?

Land Promotion Agreements have become a widely used model by landowners for delivering a maximised return for potential development land, by utilising a promoter to navigate the often-complex planning process to achieve planning permission and market the land ahead of an eventual sale.

The promoter will promote the land within the context of a local development framework plan and will apply for planning permission. It will be responsible for the associated costs and, once planning permission is granted, the promoter will also usually fund the marketing costs in respect of the land for sale. The promoter is often remunerated based on a pre-agreed percentage share of the development site’s sale value. This is usually a significant VAT bearing cost to the landowner, payment of which is due once the site is sold, with the benefit of planning permission, to a developer.

There are several considerations for a landowner when entering into such an agreement. A fundamental consideration is the VAT implications and, in particular, the ‘option to tax’. Timing is of the utmost importance, and it is imperative that advice is sought early, and all necessary steps implemented diligently. In this article we explore some of the considerations surrounding VAT and the option to tax for landowners entering into a land promotion agreement.


VAT incurred on expenditure can only be recovered to the extent that the expenditure relates to taxable supplies a business makes or intends to make. The intention will normally dictate whether or not the business can recover the VAT incurred on the development costs.

The grant or surrender of an interest in, right over or licence to occupy land (such as land for development) is generally exempt from VAT; however, it is possible for a landowner to opt to tax the land to make an onward taxable supply.

The option to tax provisions allows for a person to tax certain supplies of land which would otherwise be exempt from VAT. The purpose of the option to tax is to allow the recovery of input tax which may otherwise be lost. Therefore, opting to tax should allow the landowner recovery of VAT incurred on costs (such as promoter fees) incurred in relation to the eventual taxable sale of the land.

There are two stages in opting to tax:

  1. Making the decision to opt which may take place at a board meeting or similar, or less formally.
  2. Notifying HMRC of the decision within strict time limits.

Key considerations

There are a number of key points to be considered ahead of any land sale and the making of an option to tax. This is not an exhaustive list but some of the key considerations can include:

Is it beneficial to opt to tax?

Whilst opting to tax should allow the recovery of input VAT incurred on the promoter’s fees and other sales related costs there are some supplies where, even if an option to tax has been made and notified, the option to tax will be disapplied and a VAT exempt supply will still occur. This includes certain supplies to housing associations and DIY builders for development, as well as supplies falling within VAT anti-avoidance provisions involving connected parties where certain complex conditions are satisfied.

Is permission to opt to tax required?

If the landowner has made, or intends to make, any exempt supplies of the land or buildings within the ten years prior to the date it wishes the option to take effect, the landowner will need HMRC’s written permission to opt to tax unless they meet one or more of the automatic permission conditions.

Understanding legal and beneficial ownership – who should VAT register and opt to tax the land?

Where there is a legal owner of the land but the benefit of the income from the land passes to a different beneficial owner, for VAT purposes, it is the beneficial owner who is making the supply of the land or building. There are two potential issues that can arise in scenarios such as this, involving legal and beneficial owners.

  • Input tax – If the parties entering into the promotion agreement do not match those who will benefit from the income this can raise the question of who will be receiving any supplies under that agreement. This can potentially impact an entitlement to input tax recovery.
  • Option to tax – Another issue that may arise is if the promotion agreement does not recognise that the land is an asset belonging to the beneficial owners, this could lead to questions at the time of sale if VAT is to be added to the price. This should be possible to address at the time of the sale, but it is important that this process is managed carefully.


It is important to remember that once an option to tax has been made it cannot normally be revoked for 20 years. Therefore, even if the land was not sold as intended in this situation or planning permission was not obtained, any future supplies by the landowner of this land will likely be subject to VAT at the standard rate, except in very limited circumstances. In terms of timings, the landowner may wish to wait until planning permission is granted before opting to tax (and seeking permission to opt to tax from HMRC if necessary), this is sometimes the preferred approach as the option will apply even if the intended sale does not go ahead.

Whether the landowner should opt to tax now or later will depend on how firm the landowner’s intentions are, whether they wish to claim back VAT incurred promptly and whether permission to opt to tax is required.

A purchaser will typically want a copy of HMRC’s written acknowledgment accepting the landowner’s option to tax. At the time of writing there are significant delays across HMRC departments and the processing of option to tax notifications. It is possible to request that a notification can be dealt with urgently where a sale is dependent on the option to tax and certain condition met and information provided. This should be factored into the process when determining the most appropriate time to make an option to tax.


Constable VAT liaises closely with the landowners’ advisers to ensure that all the necessary points are considered and any changes to the structure or timing of the sale is reflected in the VAT implementation.

If you are entering into a land promotion agreement, then specialist VAT assistance will be highly beneficial. Sums involved can be significant and it is important VAT advice is sought from the outset of a potential deal. Please contact Laura Krickova, or your usual Constable VAT partner, if you would like to discuss how Constable VAT can offer help with this process.

Please note that this blog is intended to provide a general overview of the subject. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog post. Specialist VAT advice should always be sought in relation to your particular circumstance.