Option to tax

Option to tax

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I inherited a sole trade client in 2007 who had opted to tax a shop property in 2006 which she owned (in her sole name) and had renovated into a shop + flat. There is a mortgage on the building.

She is also a partner in the business that occupied the shop premises (a similar trade but she manufactures and wholesales, the shop naturally is retail and VAT registered) Rent is receivable from both flat and shop.

The older partner has now retired and she has now taken over the retail business with her husband joining as a partner. Her sole trade is to be acquired by the partnership as a going concern as there is no longer any reason to keep these separate... which leaves the option to tax.

On a transfer as a going concern I appreciate that no VAT will arise on the sole trade disposal (this is not linked to the building in question but admin for the sole trade is done there) so what happens to the Option to Tax? Due to the option she cannot deregister personally although the trade will have gone...

Does she have to account for VAT paid to herself for occupying her own property? If so, on what basis? 

Does she have to charge herself rent as a self supply? 

Can she transfer the building subject to the mortgage (and the option?) to the partnership? All but the flat rent would then cease.

VAT helpsheets don't seem to help at all with this one.

Thanks for any input you can offer, the client clearly does not wish to pay output tax on the building to cancel the option.

Replies (2)

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chips_at_mattersey
By Les Howard
11th Feb 2015 20:04

Not TOGC

The business of OldCo is property rental - NewCo has no such income, so the transfer is not a TOGC. Output Tax will be charged on the transfer of an opted property to NewCo. But, if the business is fully taxable this will be recovered as input tax.

But, it would be worth seeking fuller, paid advice on this one.

Thanks (1)
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By lechiffre
12th Feb 2015 08:52

TOGC

Its not an easy one is it?

The business of the old trade is also that of a manufacturer and wholesaler of goods... so if the partnership subsequently received the rents from flat above the shop you would consider it a TOGC?

Downside is Stamp Duty payable on the building value I guess as it transfers to the partnership?

Thanks (0)