Grant of a Lease can be treated as a TOGC

Following the results of a recent Tax Tribunal Case, the previous arrangements concerning the treatment of the grant of a lease of a business asset as a taxable supply has changed.

HMRC has now confirmed that there can be a transfer as a going concern (TOGC) for VAT purposes where there is a transfer of a property rental business by way of the grant of a lease, provided the interest retained by the Seller/Landlord is “small” enough to not disturb the substance of the transaction.

It is now therefore possible to avoid having to pay VAT to the Seller/Landlord on the purchase for a long lease of a let commercial property, and also to avoid Stamp Duty Land Tax being charged on the VAT, which would otherwise be payable.

Auction purchases VAT and transfers as a going concern

As a reminder to clients who purchase commercial properties at auction which are subject to a VAT election and have a tenant occupying, the purchase can be dealt with as a transfer of a going concern (and therefore without payment of VAT to the Seller). However, the VAT election on the relevant property has to be made by the Buyer before the auction to be certain of the purchase being treated as a TOGC.

Accordingly, the best advice to a party attending an auction and looking to bid for commercial property is to opt to charge VAT over the relevant property that may be bid for in advance of the auction. This is even though the party may not be successful at the auction.

By making the relevant election before the auction will effectively ensure that the successful bidder will be able to conclude the transaction as a TOGC thus avoiding having to pay VAT to the Seller and Stamp Duty Land Tax on the VAT amount too.

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