HMRC recently altered its rules for transfers of going concerns (TOGC) covering VAT on associated property transfers, following HMRC's defeat in a tax tribunal case.
In November, HMRC issued HMRC issued Business Brief 30/12. The new guidance follwed the decision in Robinson Family Ltd v HMRC  UKFTT 360, in which the judge ruled that a going concern property sale could be VAT-free, despite the taxpayer retaining a interest in the property.
Under the new guidance, HMRC will accept that the transfer could still be free of VAT under its TOGC rules as long as the interest retained by the vendor is "small enough not to disturb the substance of the transaction." In practice, the condition will be fulfilled if the seller retains 1% or less of the property.
In a Gabelle tax analysis of the case, Vaughn Chown explained that the dispute arose when Robinson Family Ltd sold its letting business and supplied a shorter lease to the purchaser than the lease it originally held of 125 years.
Despite the vendor retaining a head-lease and supplying a new sub-lease, the transaction substance stayed the same, the tribunal judge decided. Therefore, the sale of the letting business could qualify as a TOGC, according to Gabelle.
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