In letters from HMRC received this week acknowledging our recent Option to Tax notifications on three properties, the following same point was noted on all 3 letters (leading me to believe this is part of the standard wording they include on all acknowledgement letters?):
"Your option to tax may not make taxable a grant of the land/property which is, or is expected to become, a capital item as per Regulations 112 to 116 of the VAT Regulations 1995."
All of these properties cost or will cost over £250,000 to build so all of them will be capital items, subject to the Capital Goods Scheme 10 years adjustment periods.
Two of them, and possibly part of the third, will be leased to Third Parties, hence our Option to Tax.
Can anyone please explain to me what the HMRC note is referring to? I assume - and very much hope - it cannot mean we cannot make the rent for these properties taxable? I have read regulations 112 to 116 and regretfully have no more understanding of the meaning of this note than before.
If someone can explain this to me - perhaps with a scenario where this would apply? - I would be very grateful.