Stamp duty land tax re­bate may be on cards for land­lords

Yorkshire Post - Property - - PROPERTY - Brian Birt

OW­ING to HMRC re­cently chang­ing its prac­tice on “trans­fer of a go­ing con­cern” (TOGCs) in cer­tain cir­cum­stances, some in­vestors may be el­i­gi­ble for a stamp duty land tax (SDLT) re­bate. The con­cept of what con­sti­tutes a VAT TOGC has been widened to in­clude trans­fers of prop­erty rental busi­nesses which in­volve the seller re­tain­ing a small, re­ver­sion­ary in­ter­est in a prop­erty. Con­se­quently, VAT may have been levied on the trans­fer of busi­ness as­sets in cases where it should not have been, caus­ing an in­flated SDLT charge.

In the VAT and SDLT arena, TOGCs are prized as­sets and can present real VAT sav­ings for some pur­chasers who ei­ther can’t VAT reg­is­ter or who have a low level of VAT re­cov­ery. SDLT is al­ways a real cost so any re­duc­tions are most wel­come from the per­spec­tive of all pur­chasers.

Ad­di­tion­ally, there are cash flow ben­e­fits for those who can re­cover their VAT costs in full as they will not have to pay VAT in the first in­stance as TOGCs are out­side the scope of the tax.

An ex­am­ple of­ten used to as­sist the un­der­stand­ing of what con­sti­tutes a TOGC would be the sale of a let­ting busi­ness from one land­lord to an­other, and in which the ten­ant or ten­ants re­main in oc­cu­pa­tion of the prop­erty for some time af­ter the free­hold of the prop­erty has been trans­ferred.

In a re­cent case that went to a tri­bunal, a prop­erty de­vel­op­ment com­pany granted a lease of 125 years less three days to a pur­chaser and the lease was granted with the ben­e­fit of a prospec­tive ten­ant. HMRC ar­gued that the whole of the de­vel­oper’s in­ter­est had not been trans­ferred and re­fused to ac­cept that the trans­ac­tion con­sti­tuted a TOGC.

The First Tier Tri­bunal looked at the sub­stance of the trans­ac­tion and found that, al­though the de­vel­oper re­tained the headlease, its in­ter­est in a three day re­ver­sion and the small eco­nomic in­ter­est that it rep­re­sented in no way al­tered the sub­stance of the trans­ac­tion. The FTT held that the sub­stance of the trans­ac­tion was to put the trans­feree busi­ness in a po­si­tion where it was able to con­tinue the pre­vi­ous let­tings busi­ness of the de­vel­oper. HMRC has now changed its prac­tice on TOGCs.

HMRC’s re­sponse has been to say that it “will ac­cept that a re­ver­sion re­tained by the trans­feror is suf­fi­ciently small for TOGC treat­ment to be ca­pa­ble of ap­ply­ing if the value of the in­ter­est re­tained is no more than one per cent of the value of the prop­erty im­me­di­ately be­fore the trans­fer (dis­re­gard­ing any mort­gage or charge)”.

It added: “Where more than one prop­erty is trans­ferred at one time, this test should be ap­plied on a prop­erty by prop­erty ba­sis rather than for the en­tire port­fo­lio.

“If the in­ter­est re­tained by the trans­feror rep­re­sents more than one per cent of the value of the prop­erty, HMRC will re­gard that as strongly in­dica­tive that the trans­ac­tion is too com­plex to be a TOGC.”

The out­come of this is that TOGCs in­volv­ing in­vestors in trans­fers of let­ting busi­nesses may be able to seek re­bates of SDLT as well as VAT, as the amount of SDLT payable is cal­cu­lated on the con­sid­er­a­tion paid plus any VAT levied on that con­sid­er­a­tion. VAT that was over­charged by the seller would be re­payable to the pur­chaser and this could be a real ben­e­fit where the pur­chaser could not re­cover any VAT or only a small amount of the VAT that it was charged on the trans­fer.

Now there is an op­por­tu­nity to claim TOGC treat­ment ret­ro­spec­tively where an opted prop­erty has been sold in sim­i­lar cir­cum­stances. HMRC has claimed that it will be sat­is­fied where the par­ties can pro­vide sat­is­fac­tory ev­i­dence that the proper TOGC treat­ment was con­sid­ered at the time of the trans­fer. This could be in board meet­ings or solic­i­tors’ let­ters so you may be in for a wind­fall.

Brian Birt is a se­nior tax con­sul­tant with Gar­butt and Eil­liott, www.gar­butt-el­liott. co.uk

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