VAT on commercial property

VAT on Option and Promotion Agreements

PropertyVAT Team · Updated 21 October 2026 · 3 min read

Options and promotion agreements both get land to the point of sale with planning consent. Commercially they are alternatives. For VAT they are different in kind, and the difference decides who bears an unrecoverable cost.

Option agreements

Under an option, a developer pays for the right to buy land at a future date, usually subject to obtaining planning consent.

The grant of an option over land is generally treated as a supply of an interest in land. So it follows the land:

• Owner has not opted to tax — the option fee is generally exempt
• Owner has opted to tax — the option fee is generally standard-rated

The eventual exercise and sale follows the same logic, subject to the position at that time.

Promotion agreements

Under a promotion agreement, a promoter takes the land through planning at their own cost and is paid a share of the sale proceeds. Unlike an option, the promoter does not usually buy the land — they are paid for getting it sold at a higher value.

The promoter is providing services: planning promotion, project management, marketing. Those are generally standard-rated, regardless of how the fee is calculated.

That is the key difference. A promoter's share of proceeds is not a share of a land sale; it is consideration for services, with VAT on it.

Why this matters to a landowner

A promotion fee can be a significant percentage of a substantial sale. Twenty percent VAT on top of that is a large sum.

Whether it is a cost or a wash depends on the landowner's position:

A farming family selling land with no option to tax and no registration may find the VAT on the promoter's fee is simply a cost. On a large consented site that is a material and avoidable surprise.

This is one of the main reasons landowners entering promotion agreements are advised to consider registering and opting — not for the sale itself, but to recover VAT on the costs of getting there.

The knock-on effect on the sale

Opting to tax to recover promoter and consultant VAT has a consequence: the eventual sale becomes standard-rated.

That means the buyer must fund 20% at completion and pay stamp duty on the VAT-inclusive consideration. Developers price for this, and it is a known feature of consented land.

So the landowner's decision is a trade-off:

• Opt: recover VAT on substantial promotion costs; the buyer funds VAT on the sale
• Do not opt: the sale is simpler for the buyer; the VAT on your costs is a dead expense

On a site with heavy promotion costs the first usually wins, but it should be a decision taken with advice rather than by default.

Practical points

For landowners

1. Model the VAT on promoter and consultant fees before signing.
2. Take advice on whether to register and opt to tax.
3. Make sure the agreement states whether the promoter's fee is inclusive or exclusive of VAT.
4. Keep the option to tax documentation — the sale may be years away.

For developers and promoters

1. Establish whether the landowner has opted, and what that means for the option fee.
2. Be clear in the agreement whether fees are stated exclusive of VAT.
3. On exercise, confirm the VAT position afresh — it may have changed since the option was granted.
4. Budget for VAT on the land at completion if the owner has opted, plus the stamp duty on it.

This guide is general information, not tax advice. Option and promotion structures are technical — take specialist VAT advice before entering into either.