Identifying where property purchases are a transfer of a going concern and VAT free.

Commercial property transactions are generally considered exempt supplies for VAT purposes, with a few exceptions – for example, new builds less than three years old. However, it is common for an owner of commercial property to have elected the property for tax, therefore requiring a buyer to pay VAT on any sale price. While the buyer may recover this tax, there is a cash flow impact, and it also increases the Stamp Duty Land Tax payable (which is calculated on the VAT inclusive price).

Where a buyer does not pay VAT on the property (or any assets and stock that come with it) is on taking a transfer of a business as a going concern. TOGC relief is available if the seller is selling a property rental business (property subject to tenancies) or a trading unit subject to certain conditions.

Where TOGC relief applies

  • The buyer must have exercised the option to tax (which is personal and does not pass with the property) and notified HMRC by the relevant date – usually the completion date, or the date of transfer of monies as a deposit, if earlier.
  • If the seller is a taxable person the buyer must be VAT registered or become VAT registered immediately after the transfer.
  • The buyer must use the assets being transferred to carry out the ‘same kind of business’ as the seller. For example, if the business remains a restaurant, even if it changes from an Italian to an Indian.

Helpful guidance on TOGC status and examples can be found here

Examples of TOGC transfers

  • You own the freehold of a property which you let to a tenant. If you sell the freehold with the benefit of the existing lease, a business of property rental is transferred to the buyer. This is a business transferred as a TOGC even if the property is only partly tenanted. Similarly, where you own the lease of a property (subject to a sub-lease) and you assign your lease with the benefit of the sub-lease. This situation will apply if you are a tenanted pub company selling a unit to an investor purchaser
  • If you grant a lease of a building, but the tenants are not yet in occupation, you are carrying on a property rental business.
  • If you own a property and have found a tenant but not actually entered into a lease agreement when you transfer the freehold to a third party, there is sufficient evidence of intended economic activity for there to be a property rental business capable of being transferred.
  • You are a property developer selling a site as a package (to a single buyer) which is a mixture of let and unlet, finished or unfinished properties. If the sale of the site would otherwise have been standard rated, then subject to the buyer opting to tax for the whole site, it can be regarded as a business transferred as a going concern in its entirety.

Examples where there is not a TOGC

  • You are a property developer who has constructed a building which you allow someone to occupy temporarily (without any right to occupy after any proposed sale) or you are ‘actively marketing’ it in search of a tenant, there is no property rental business being carried on.
  • You sell a property where the lease you granted is surrendered immediately before the sale; your property rental business ceases and so cannot be transferred as a going concern – even if tenants under a sublease remain in occupation. When the lease is brought to an end the property rental business carried on by the former freeholder has ceased and cannot be transferred. This is a common TOGC issue in the pub sector where you have managed houses with intra-group operating leases to group or related companies and such operating leases need to be surrendered immediately before the sale of the property.
  • You sell a property freehold to the existing tenant who leases the whole premises from you. This cannot be a transfer of a going concern because the tenant cannot carry on the same business of property rental. This would remain the case even if the new freeholder vacated the property on acquisition and found a new tenant; when the lease is brought to an end, the property rental business carried on by the former freeholder has ceased. Tenants purchasing the freehold from a pub company often wrongly assume their purchase will be a TOGC and fail to finance the VAT element. It needs to be clearly explained and understood at heads of terms stage that VAT will be payable because the ‘same kind of business’ is not being continued.
  • You grant a lease in respect of a building and the tenant is running a business from the premises. The tenant then sells the assets of his business as a going concern and surrenders his lease to you. You grant the new owner of the business a lease in respect of the building. This is not a transfer of a property rental business.

A warning
Where TOGC status is being claimed and VAT is not charged, your lawyers must ensure the sale agreement contains relevant warranties and indemnities protecting both the seller and the buyer. For example, warranties from the seller that it is registered for VAT, that they have used the property as a rental business and have made a valid option to tax which it has not been revoked.

The buyer will need to warrant that it has exercised the option to tax, will not revoke this before completion and following completion will carry on the same kind of business as the seller. The sale agreement should also have an indemnity in favour of the seller that should HMRC disagree with the TOGC classification and charge VAT (a liability that would fall on the seller) the buyer will compensate the seller for all costs.

If you have any questions regarding transfers of going concerns, please contact Janan Kanagaratnam at or by phone on +44 (0) 345 271 6758


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The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.