Property Taxation — SQE1 practice question

A landlord opted to tax a commercial building fifteen years ago, when he bought it, and has charged tax on the rent ever since. He has held the building throughout. His current tenant runs a care home, cannot recover the tax it is charged, and is in financial difficulty. He has written to HMRC asking to revoke the option and has told the tenant that he expects the matter to be dealt with within a month or two.

What advice should the landlord be given about revoking the option to tax?

Option A. Incorrect answer. The option may be revoked on giving HMRC thirty days' notice at any time after it took effect.
Option B. Correct answer. The option cannot yet be revoked, as twenty years have not elapsed since it took effect.Correct
Option C. Incorrect answer. The option can never be revoked once it has been made and notified to HMRC.
Option D. Incorrect answer. The option may be revoked at ten years, provided the tenant consents to the revocation.
Option E. Incorrect answer. The option cannot yet be revoked, but the landlord may simply stop charging the tenant tax.

Why

The correct answer is B. An option to tax is in principle permanent, but it may be revoked once twenty years have elapsed since it took effect, subject to the conditions in the legislation. There is also a cooling-off period allowing revocation within six months of the option taking effect, and an option lapses automatically where the opter has held no relevant interest in the property for six years. Neither helps here: the landlord opted fifteen years ago and has held the building throughout. The tenant's inability to recover the tax it is charged is not a ground for revoking.

A is incorrect because there is no general right to revoke on notice; the twenty-year rule is the ordinary route. C is incorrect because the option is not irrevocable; it can be revoked once the twenty years have run. D is incorrect because no ten-year route exists and a tenant's consent is not a relevant condition. E is incorrect because a landlord who has opted must account for output tax on the rent whether or not it collects it from the tenant, so it cannot simply choose to stop charging.