Euan MacLennan
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Purchase of commercial property

Purchase of commercial property

I am not feeling at my brightest today, having had some surgery yesterday, so I would be grateful if my fellow members could save me the mental effort of looking it up for myself.

VAT-unregistered new client company is buying commercial property (I believe a head lease, rather than the freehold) from a vendor who wants to charge VAT, so I assume that the vendor must have registered for VAT and opted to tax.  I am therefore now registering my client for VAT.

  1. I am also applying for my client to opt to tax (isn't it good that you can do this all online now?), but is it necessary to opt to tax in order to reclaim any VAT charged on the sale of the property?  I think it probably is because otherwise the property would be being acquired for the purpose of making exempt supplies of rent.
  2. The solicitor acting for my client is saying that registering for VAT (and perhaps, also opting to tax) are pre-requisites for the sale being treated as a TOGC, with which I am inclined to agree.  Am I right that a sale of a let commercial property satisfies the rules for a TOGC?
  3. The solicitor is asking if we can serve on the vendor a notice under Article 5.2B of the VAT (Special Provisions) Order 1995 to say that it does not apply to my client.  If it is a TOGC, why would we have to serve such a notice?
  4. Not really my concern, but the solicitor says that if VAT is charged (and reclaimed by my new client), SDLT would be payable on the price plus VAT.  Is he right?

Thank you for any answers.


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23rd Nov 2012 13:28

Yes to question 4 - SDLT is payable on the VAT inclusive price

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23rd Nov 2012 13:41


The transfer of a tenanted property is a TOGC and SDLT is payable on consideration (price plus VAT).

If VAT is incorrectly charged by the vendor, because it is a TOGC, then the VAT cannot be reocovered from HMRC by the purchaser though.

Who's the tenant? The reference to Article 5(2B) only makes sense to me if the tenant is a party connected to the purchaser that is wholly or partly exempt, such that any OTT by the purchaser would be ineffective under the anti-avoidance provisions.

I think the answer to question 1 may hinge on the above.


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23rd Nov 2012 13:44

TOGC & Otion to Tax

The TOGC question is not settled entirely by the fact of the sitting tenant.

2. Where the Vendor has opted, then the Purchaser also has to opt, and that option has to be made BEFORE the date of Completion or payment of deposit, whichever is first; art 5(2A) and 5(3) of the Special Provisions Order explain this.

3. The art 5(2B) issue is to do with anti-avoidance legislation. Although the Purchaser has opted and tells the Vendor that, the option may be disapplied. The Notice is a reference to this provision. The risk, of course, is that the TOGC would not apply, and the Vendor is left holding a big VAT liability.

1. HMRC like to see an option in place as undeniable evidence of the intention to make taxable supplies. I have heard of instances where they have challenged the deduction of input tax in the absence of an option.

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23rd Nov 2012 13:52

Thank you all

As it has only just been sprung on me, I don't know all the details, but I am sure that the tenant(s) has no connection with the purchaser and I have no reason to believe that they would be exempt anyhow.

So, I will proceed with the VAT registration and Opt to Tax immediately and agree that the Sale is a TOGC, so that the SDLT is not increased.

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23rd Nov 2012 13:51


Les's explanation of article 5(2B) and the not aspect clears up where I was struggling.  Ignore me and listen to Les!

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By tom123
23rd Nov 2012 15:43


Back at work one day after surgery - that's dedication Euan,

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23rd Nov 2012 16:15


It was only (one) day surgery!

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By mhtax
24th Nov 2012 18:14


I am informed (by a very reliable man who can) that you do not need to be registered, or even be the owner of a property to opt to tax it. You should send the option application and registration forms to the option office not the new registration address. I have seen examples of the registration office holding up a transaction due to asking for irrelevant proof's of intention to trade in support of the registration instead of issuing the option agreement first.

My understanding of TOGC is that if it applies it is compulsory treatment, and as long as the position of the tenants is the same before and after the purchase it is applicable.

I think this is the only instance of a tax being payable on a tax re the SDLT point

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