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TOGC – grant of new lease? |
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The transfer of an existing interest in a property can be a Transfer Of a
Going Concern for VAT purposes, which makes the transaction outside
the scope of VAT (eg when an existing interest in a let property is
transferred to a buyer who will carry on the letting business; or where an
existing interest in a property which is used for the purposes of a
business is transferred together with the business to a buyer who will
continue to run the business from the property).
HMRC’s published position has always been that the grant of a lesser
interest (even where it is, say, a 999-year lease out of a freehold) will
not constitute a TOGC, so that generally the VAT position will be
governed by whether the seller has opted to tax. However, a note from
Pinsent Masons says that several TOGC clearances have been granted
on specific transactions allowing TOGC status where a lesser interest
was granted. Despite that, HMRC’s published guidance remains that
such grants cannot be TOGC.
From a buyer’s point of view, TOGC treatment may be in their interests
since it saves cashflow on the VAT (and avoids SDLT being calculated on
the VAT-inclusive figure). Accordingly, buyers could suggest TOGC
treatment, but the seller is likely to want to apply for TOGC clearance to
protect itself. From the seller’s point of view, the safest course is to
follow the existing HMRC published guidance and continue to treat
grants of lesser interests as not constituting TOGC. If the buyer raises
the point, and the seller wants to be co-operative, the answer is to apply
to HMRC for TOGC clearance to get certainty (but if clearance is not
obtained before completion, the seller should make sure the buyer gives
full indemnity and protection for VAT, interest and penalties). Source:
Pinsent Masons. © Practical Lawyer
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July 2007 |
