Tax Corner: ‘Opt to Tax’ - what should I do?

Shane Martin
Shane Martin

QUESTION: I am purchasing a property that has an option to tax on it. I will use this as my business premises but also rent out half the building. I also have work to do to the whole building before occupying or renting. Do I need to opt to tax the building and what else should I be aware off?

ANSWER: Opting to tax a property for business use, particularly when you intend to rent out a portion of it and conduct renovations, is a significant financial decision with various implications. This decision can have a considerable impact on your business’s finances and tax obligations. We will delve into the key considerations and factors you should be aware of when deciding whether to opt to tax a property and how to navigate this complex process.

When you purchase a property you plan to use for business purposes, the first consideration is whether to opt to tax it. Opting to tax a property means that you choose to charge value added tax (VAT) on the rent you receive from tenants. The main advantage of this is that you can reclaim VAT on related expenses, such as refurbishment costs. This can be a significant financial benefit, especially when you have substantial renovation or construction plans for the property.

The nature of your business plays a crucial role in this decision. Different businesses have different VAT needs and considerations. If your business is VAT-registered and you plan to use the property for activities that are subject to VAT, opting to tax can be a logical choice. In this case, you’ll be able to recover VAT on your expenses and potentially reduce your overall VAT liability.

However, if your business is not VAT-registered or conducts activities that are exempt from VAT, the decision becomes more complex. Opting to tax means you’ll charge VAT on the rent, which can be a cost to tenants who are not VAT-registered and cannot reclaim the VAT you charge them. This could potentially make your property less attractive to certain tenants.

One of the most significant advantages of opting to tax is the ability to recover VAT on expenses related to the property. If you’re planning extensive renovations or construction work, this can result in substantial VAT reclaims. Keep in mind that you must maintain accurate records of all expenses and VAT receipts to claim this benefit.

The VAT status of your tenants is another critical consideration. VAT-registered tenants can reclaim the VAT you charge them on rent, making the decision to opt to tax less burdensome for them. However, if your tenants are not VAT-registered, the additional cost of VAT may deter potential tenants or reduce your rental income.

Consider your long-term plans for the property. If you intend to sell it in the future, whether opting to tax was a good decision may influence the sale price. Prospective buyers will consider the VAT implications, and it can affect the property’s marketability.

Your adviser can guide you through the process of registering for VAT and opting to tax if you decide to go that route. They will ensure you are in compliance with all the necessary regulations, including VAT reporting requirements and record-keeping.

In conclusion, deciding whether to opt to tax a property is a multifaceted process. It involves assessing your business needs, considering VAT implications, understanding tenant VAT status, and thinking about your long-term plans.

:: Shane Martin ( is tax director at FPM Accountants ( The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.