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Property TOGC?

TOGC on sale and leaseback?

I'm hoping someone may be able to help with the following:

My client owns two ltd companies, one being a subsidiary of the other. The top company owns the freehold of a property which is rented to the subsidiary, both companies are in the same VAT group.

To free up cash my client is entering a sale and lease back of the property to a third party, with the subsidiary remaining in occupation. The purchaser wants the property to be treated as a TOGC to avoid the additional SDLT, however my opinion at the moment is that this is not a TOGC because:

  • Top co rents the property to sub (under no formal contract) however the VAT group ultimately operates a business from the premises so there is no property rental business being transferred. In HMRC's eyes does the VAT group supplies veto that of the intercompany rent?
  • Third party will enter a lease with the clients top co, not the subsidiary.
  • The third party has suggested entering a lease in advance of the transfer, but I don't see how this will help achieve TOGC status.

I have asked the third party to provide written advice from their advisors as to why they believe it's a TOGC but I haven't received anything yet.

Thanks in advance. James


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07th Dec 2017 14:00

I share your concern.
I would add that, where there is a sale and lease-back, these two transactions may be considered a 'series' of transfers, and so breach the TOGC test.
I would examine the option from the 'third party,' but you will need fuller paid advice to review leases, etc.

Thanks (1)
07th Dec 2017 14:20

In my view, s 43 does not impact on the TOGC provisions.

TopCo carries on a business of renting the property.
TopCo may also carry on some other business.
BottomCo carries on some business, using the property.

S 43 simply says that all of those businesses shall be treated as carried on by the representative member, and supplies between TopCo and BottomCo (which includes the rent) shall be disregarded.

The disregarding of the rent doesn't mean the business is not being carried on.

This point is confirmed in VTOGC5150.

Now TopCo transfers the property to third party. Is the third party now carrying on the same business? I'm not sure that it is, but because of the leaseback, not because of the operation of the s 43.

I think TopCo is retaining its business of letting the premises to BottomCo. What has happened is that the freehold has been trasnferred to third-party, with a new lease (from third party to TopCo) being interposed to permit TopCo to continue its property rental business undisturbed. Which doesn't sound like a TOGC to me.

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By Ruddles
to Portia Nina Levin
07th Dec 2017 15:55

Not that it necessarily means anything, HMRC state quite clearly that a sale and leaseback is not a TOGC.

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to Ruddles
07th Dec 2017 16:06

I'm reconsidering my opinion then. The thought of being in agreement with HMRC is, as you know, something of an anathema to me.

Incidentally, where do HMRC quite clearly state it? I couldn't find a statement on way or t'other when I looked.

Mind you, today feels more like AWeb, so I can't complain.

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