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Can a property acquisition be classed as TOGC?

My Client wants to buy a property which they currently use under a lease for their main business and therefore are a tenant. The landlord has opted to tax therefore VAT is being charged.

Can my client therefore buy the property through a holdco and treat it as a transfer of a going concern. I read somewhere that it will effectively be a "rental business" therefore will qualify for TOGC provided all the normal TOGC rules are met. They want to use a holdco because they want to keep the property separate.

If not I was going to suggest that the holdco buy the property and they register for VAT and opt to tax thereby reclaiming the VAT on the purchase price. The subsequent rental will obviously be subject to VAT but the main business can claim that back as they require.

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By BKD
11th Jun 2012 17:00

TOGC

For TOGC treatment, the new company would need to register and opt before Completion.

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TOGC is the better option

As BKD says, you can do what you want, provided it's done correctly.

Having a TOGC is actually a better option as SDLT will be charged on the purchase price including any VAT.

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By DMGbus
11th Jun 2012 21:00

Landlord to Landlord

For a TOGC to be valid the new owner has to be put in the position of the old owner.

Therefore it has to be a new landlord buying the property WITH THE BENEFIT OF AN EXISTING SITTING TENANT from the previoius landlord.   Obviously new landlord has to opt to tax the property and be VAT regisrtered.

It will NOT be a TOGC if it is landlord selling to tenant.

As already stated there's an SDLT saving (as well as VAT cashflow benefit) by treating the deal as a TOGC.   Timing of the option to tax is crucial.

Form VAT1614A is the mechanism for opting to tax:

http://www.hmrc.gov.uk/forms/vat1614a.pdf

 

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By BKD
11th Jun 2012 21:51

Minor clarification

DMGbus wrote:

Therefore it has to be a new landlord buying the property WITH THE BENEFIT OF AN EXISTING SITTING TENANT from the previoius landlord.  

There doesn't need to be an existing sitting tenant. But there has to be in place at least an agreement to lease.

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12th Jun 2012 12:23

type of lease/sale

DMGbus wrote:

"For a TOGC to be valid the new owner has to be put in the position of the old owner.

Therefore it has to be a new landlord buying the property WITH THE BENEFIT OF AN EXISTING SITTING TENANT from the previoius landlord.   Obviously new landlord has to opt to tax the property and be VAT regisrtered.

It will NOT be a TOGC if it is landlord selling to tenant."

I agree:

even if the landlord was charging vat on the rent.-this is irrelevant.

OPT to tax is choosing to tax on the SALE of a property.-which would only be done for a B2C vendor/purchaser-BUSINESS VENDOR/PRIVATE BUYER TRANSACTION.

TOGC is the opposite.where you choose NOT TO CHARGE OR RECOVER VAT ON THE SALE OF PROPERTY, BECASUE ITS AN EXISTING BUSINESS AND BOTHE BUYER AND SELLER ARE VAT REGISTERED.

 

whether a landlord charges VAT on rent has nothing at all to do with opt to tax rules.

vat is charged on rentals for commercial property- not on whether the landlord has opted to tax.

As already stated there's an SDLT saving (as well as VAT cashflow benefit) by treating the deal as a TOGC.   Timing of the option to tax is crucial.

Form VAT1614A is the mechanism for opting to tax:

http://www.hmrc.gov.uk/forms/vat1614a.pdf

 

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By BKD
12th Jun 2012 17:48

Oops

david5541 wrote:

whether a landlord charges VAT on rent has nothing at all to do with opt to tax rules.

vat is charged on rentals for commercial property- not on whether the landlord has opted to tax.

Quite incorrect. Most rents - commercial or residential - are exempt by default. To make rents on a commercial property taxable the option to tax is required. (An option can be made over residential property, but will have no effect.)

Where an option to tax is not required is furnished holiday letting, which is always standard-rated.

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ALL????

BKD wrote:

All rents - commercial or residential - are exempt by default. To make rents on a commercial property taxable the option to tax is required. (An option can be made over residential property, but will have no effect.)

Dangerous word in VAT that "All" word! :) I could give you examples of rents that aren't exempt by default, but then I know you can read the legislation too!

EDIT: Damn! You spotted your mistake!

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12th Jun 2012 14:50

Thanks to everyone.

 

Just going to check my understanding but I think I have the gist- feel free to let me know if I have missed something.

 

Provided that the purchaser is VAT registered and has the option to tax in place before buying the property and buys the property using his Newco and therefore steps into the lease to his existing business as the New landlord then this transaction can be treated as TOGC as he is effectively buying the old landlord's existing rental business and carrying it on as his own.

 

I will therefore make sure that the client has the option to tax in place before he buys. Does the VAT registration have to be in place before he buys too? The reason I ask this is I am just wondering if we would need to let HMRC know that this was bought as  TOGC after registration occurs or just mark it on the VAT registration form when registering?

Thanks

 

 

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