The VAT and Property Guide - Practical Conveyancing

1 The VAT and Property GuideTransfers of Property as a Going ConcernSean Finn of Lovells2nd EditionThis is an extract from The VAT and Property GuideYou can buy a copy of the complete book for only (plus P&P) by ordering here ..an indispensible Guide to the complexities of VAT for allproperty says The Practical LawyerPlease note that this is a contents list for The VAT andProperty Guide by Sean chapter featured in this Guide is 11. Transfers of Propertyas a Going order a complete copy of VAT on Property Transactionsplease click Key VAT concepts and terms012. Basic principles commercial and non-commercial buildings 073. Construction, conversion, alteration, demolition and civil engineering114.

2 Disposals of non-commercial property195. Disposals of commercial property256. The election to waive exemption397. When is VAT payable in Property transactions?578. Self-supplies6310. Legal and beneficial owners7311. Transfers of Property as a going TOGCs of rental Miscellaneous examples of Property TOGCs and VAT Input tax on transaction costs8512. Abuse of law and VAT disclosure rules8913. Transactions under planning agreements9714. Some other implications of VAT in Property transactions99 AppendicesIndex Practical 2 VAT TOGCsYYoouurr ffrreeee ssaammppllee cchhaapptteerrCClliicckk hheerree ttoo oorrddeerrTThhee VVAATT aanndd PPrrooppeerrttyy GGuuiiddee,, SSeeccoonndd EEddiittiioonn11.

3 Transfers of Property as a Going ConcernPractical TOGCsSean Finnof LovellsSean Finn is a partner in the London office ofLovells. He advises a wide range of clients on allaspects of corporate and business acts for a broad range of household names acrossa number of industrial and financial sectors, and hasparticular expertise in advising on tax aspects ofprivate equity transactions, M&A, reconstructions,and Property - and VAT-related is a member of the Chartered Institute ofTaxation and a member of the European VAT Transfers of Property as a going TOGCs of Miscellaneous examples of Property TOGCs and VAT Input tax on transaction costs16 Notes18 Main Contents02 Practical TOGCsSummary A transfer of a business as a going concern ( TOGC) is outside the scope ofVAT.

4 Where the transfer includes Property which is standard-rated, either becausethe seller has opted to tax it or because it is a new or uncompleted commercialbuilding or civil engineering work, a condition of TOGC treatment is that thepurchaser must opt to tax the Property and notify the option to HMRC no laterthan the date of the supply. This may be the date of completion or, if earlier, thedate of receipt of payment or part payment (eg of a deposit). The transferee must notify the transferor by the same date that thetransferee s election will not be disapplied under certain anti-avoidanceprovisions. Where the vendor is a taxable person , a condition of TOGC treatment is thatthe purchaser must already be, or become as a result of the transfer, a taxableperson (ie registered or liable to be registered for VAT ).

5 In determiningwhether the purchaser is liable to be registered, supplies made in the courseof the business by the vendor are deemed to have been made by thepurchaser. The transfer of a leased Property subject to and with the benefit of the leaseis generally treated as a TOGC of a Property rental business. HMRC considers that a wide range of Property transfers qualify as TOGC sunder this principle. For example, TOGC treatment applies: even if the tenant is enjoying a rent-free period; even if the tenant is not yet in occupation; where Property is sold subject to an agreement for lease; and on a sale of a development containing a mixture of let and unlet, finishedand unfinished properties.

6 Transactions other than transfers do not qualify as TOGCs (for example thegrant or surrender of a lease). TOGC treatment does not apply on a sub-sale (or a series of immediatelyconsecutive transfers). On a TOGC to a partly exempt group, a self-supply charge arises on thepurchaser s group of the open-market value of certain assets ffrreeee ssaammppllee cchhaapptteerrCClliicckk hheerree ttoo oorrddeerrTThhee VVAATT aanndd PPrrooppeerrttyy GGuuiiddee,, SSeeccoonndd sale or transfer of a business as a going concern to aperson who will carry on the business as the transferor hasdone is treated as not involving any supply for VAT purposes,and is therefore outside the scope of VAT.

7 Provided certainconditions are same applies to the sale or transfer ofpart of a business which is capable of separate the business assets being transferred includeproperty in relation to which the vendor has elected to waiveexemption from VAT, or which would (but for the TOGC rules)be standard-rated as the sale of a new or uncompletedcommercial building or civil engineering work, the transfer ofthe Property will only be outside the scope of VAT if the transferee elects to waive exemption in relation to the Property ,and gives written notification of the election to HMRC no laterthan the date on which a supply of the Property would (but forthe TOGC rules) be treated as having been for the transferee to elect to waive exemption inrelation to taxable properties applies not only to the sale oftenanted properties (see below) but also to the sale ofproperties as part of the assets of a non- Property business (egthe sale of a retail business) which the transferee will occupyfor the purpose of carrying on the business.

8 For TOGCs tonominees, see 5contains standard VAT and TOGC wording for aproperty sale contract where the vendor has elected to tax theland being sold, and Appendix 6contains additional clauses tobe inserted into such a contract where the purchaser is actingas a TOGCsYYoouurr ffrreeee ssaammppllee cchhaapptteerrCClliicckk hheerree ttoo oorrddeerrTThhee VVAATT aanndd PPrrooppeerrttyy GGuuiiddee,, SSeeccoonndd sale or transfer of a fully or partially tenantedproperty by a landlord to another person is generally treated asa TOGC and is not chargeable to VAT, even where the electionto waive exemption has been made or the sale is of a freeholdof a new building, provided the following conditions aremet:3(a) The purchaser must intend to carry on the business ofletting the building as the vendor has done.

9 (b) The purchaser must take over as landlord with immediateeffect from the date of completion.(c)There must be no break in the business (ie the tenancy).(d)Where the vendor is a taxable person , the purchaser mustalready be, or become as a result of the transfer, a taxableperson (ie registered or liable to be registered for VAT seefurther ).(e)Where the vendor has elected to waive exemption inrelation to the Property , or the transfer would (but for theTOGC rules) be standard-rated as the sale of a new oruncompleted commercial building or civil engineeringwork, the purchaser must elect to waive exemption inrelation to the Property and give written notification of theelection to HMRC by no later than the date on which thegrant of the Property would (apart from the TOGC rules)be treated as having been made.

10 If there is more than onesuch date, the election must be made and notification givento HMRC by the earliest of them. HMRC interprets thereference to the date of the grant as equivalent to the timeof supply (see ). Practical TOGCsYYoouurr ffrreeee ssaammppllee cchhaapptteerrCClliicckk hheerree ttoo oorrddeerrTThhee VVAATT aanndd PPrrooppeerrttyy GGuuiiddee,, SSeeccoonndd EEddiittiioonn(f)The transferee must also notify the transferor by the samedate as in (e) above that the transferee s election will not bedisapplied under certain anti-avoidance provisions.(g) Where part of a Property is transferred, that part must becapable of separate operation as a Property rental business.