VAT on purchase of pub from a brewery

VAT on purchase of pub from a brewery

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I've got a meeting with someone who wants to buy a pub.She intends to buy it in her own name and then rent it to a company that will be set up to run the pub. She will own the company.

I am thinking that there will be no VAT on the purchase of the pub as long as she registers for VAT before the sale and continues in the same trade - ie renting the pub out. However, I'm just wondering if she can do this - is there any anti avoidance rules that will forbid it?

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By neileg
13th Nov 2012 09:45

Mmm...

Are you confident of a TOGC from the brewery? It could be argued that the brewery business is more than renting out the pub. If it's a managed house and not tenanted currently then it will fail the TOGC test.

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By David Smith
13th Nov 2012 12:01

But if it is a TOGC?

But if it is a TOGC is there any reason she can't proceed as per my OP?

 

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By DMGbus
13th Nov 2012 16:16

No anti-avoidance rules, but...

Obviously VAT1614A will be completed at the right time, I hope.

I do NOT see anti-avoidance VAT rules kicking in where, as in this case, the associated tenant is a fully taxable (ie. not VAT exemnpt) in its activities.

However other obstacles thast I've encountered include:

Lenders might say that freehold and trade need to be in same entityVendor of property refuses to play ball (Pubcos / Breweries owning pubs seem to have a cavalier attitude to everyone they deal with)

Then, consider the TOGC rules - may fall at this hurdle:

Purchaser has to, in effect, step into the shoes of the vendorThis means vendor must be a landlord and purchaser must also be a landlord (so fails if it was a pub run by the brewery with an employed manager)I believe that there has to be a tenant in place immediately before and after the property ownership passes - it is my understanding that HMRC will not agree that a TOGC takes place if a "vacant posession" transfer takes place

Extract from VAT notice 742A:

1.2 What if I am transferring land or buildings as part of a transfer of a going concern?

In order for the transfer to be treated as a VAT free TOGC you must meet all conditions specified in Notice 700/9 Transfer of business as a going concern.

In addition, however, you must meet two further conditions where:

you have opted to tax the land or buildings being transferred and the option is not disapplied in relation to the transfer, oryou are transferring the freehold of a 'new' building and the supply, but for the TOGC, would be subject to the standard rate of VAT.additional conditions are:the purchaser must have opted to tax or made a real estate election (these must have been both notified to HMRC and effective on or before the relevant date. Paragraph 14.8 below explains how to notify a real estate election), andthe purchaser must have notified you that their option to tax will not be disapplied under the anti-avoidance provision set out in VATA 1994, Schedule 10, paragraph 12 in respect of supplies they intend to make of the land or building (see section 13).

The requirement for the purchaser to notify the seller that their option will not be disapplied is designed to deal with avoidance schemes making use of TOGC provisions. In deciding whether their option is disapplied, the transferee needs to consider whether there are any circumstances in which the building being transferred would become for them a capital item. This could be, for example, as a result of the building being treated as part of the TOGC or alternatively as a taxable supply.

In cases where prior permission for an option is required, the application must have been made on form VAT1614H and HMRC must have granted permission before or on the relevant date (see section 5).

Where land and buildings form part of a TOGC the transfer is treated as neither a supply of goods nor a supply of services for VAT purposes and no VAT should be charged.

See also VAT notice 700/09 extract as follows:

2.5 What are the rules when a 'property rental business' is transferred?

Section 6 gives examples of circumstances concerning the transfer of land/property where there may (or may not) be a transfer of a business of 'property rental' as a 'going concern'. In those cases where there has been such a transfer, the conditions of paragraphs 2.3 and 2.4 must still be met for there to be a TOGC and for the supply of assets to be ignored for VAT purposes.

An optional statement of practice is available where a property rental business is being transferred to a nominee acquiring title for a named beneficial owner. See section 8.

Where only the beneficial ownership of a property rental business is transferred and the legal title is retained by the seller there may be a TOGC. If the seller’s ownership is reduced to being no more than that of a bare trustee, it is accepted that the property, together with its lettings may be transferred as a 'going concern'.

Where there is a transfer of a beneficial interest from A to B to C on the same day this is seen as a series of consecutive transfers, even where the legal title is transferred directly from A to C. The condition as per sub-paragraph 2.3.3 is not met and TOGC does not apply to any of the transactions. Different rules apply in Scotland, however, to the transfer of a property rental business, where it is possible to 'dispone' ownership. Under Scottish law the disposition of the ‘ownership of the property’ may been seen to be direct from A to C, and the TOGC provisions may apply, subject to meeting the other conditions in paragraph 2.3 and paragraph 2.4.

When a tenanted building is sold or a lease is assigned mid-way through a rent period, an adjustment is normally made to the consideration at the point of completion. These adjustments may be for rent collected, or for water and power paid for in advance prior to the sale or assignment. They are not consideration for any supply and are outside the scope of VAT. For VAT purposes the consideration for the sale of the building or the assignment of the lease is the full value of the supply before any adjustment is made (see Notice 742 Land and Property).

 

 

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