Seller was not a developer

In May 2001 the taxpayer bought a property on which the seller had opted to tax. The taxpayer then opted to tax the property enabling him to claim back from HMRC the input VAT he had paid to the seller. In 2014 the taxpayer sold the property to a third party which was not VAT registered. He did not add VAT to the purchase price on the basis that his option to tax was disapplied and so the sale of the property was VAT exempt. HMRC disagreed saying he should have charged the purchaser VAT and then paid that VAT to HMRC.

The taxpayer’s appeal was dismissed by the First-tier and Upper Tribunals and also the Court of Session.

Sales of land and buildings are generally exempt from VAT (VATA 1994 Sch 9 Group 1). However Sch 10 para 1 gives a taxable person an...