ACCA Advanced Taxation (ATX) Practice Exam

Is the leasing of land and buildings automatically exempt from VAT?

1. Yes, it always is

2. No, unless opted to tax

3. Only for residential properties

4. Only for commercial properties

The correct answer is: No, unless opted to tax

The leasing of land and buildings is subject to specific VAT regulations, and the correct understanding is that it is not automatically exempt from VAT unless the lessor opts to tax. In the UK, for example, most land and building leases are exempt from VAT unless the landlord has chosen to apply VAT to the rental income by making a specific election. This option to 'opt to tax' allows landlords to charge VAT on their supplies, which can be beneficial if the landlord is VAT registered, as it enables them to reclaim VAT on related expenses. If the option to tax is not taken, the rental income remains VAT exempt, which also means that the landlord cannot reclaim any VAT on purchases related to the exempt supplies. The other options present misunderstandings about the applicability of VAT to leasing arrangements. Some might suggest that all leases are exempt or that certain types of properties are subjected differently, but without opting to tax, the general treatment of leases does not change. The distinct choice of applying VAT on leasing land and buildings is critical to understanding VAT’s implications in property taxation.