If you or your clients have purchased a building within the last four years as part of an on-going business concern, and VAT was paid on the transaction, you should review the conditions it was acquired with a view to making a claim for over paid SDLT.
Following the case of Robinson Family Ltd.  UKFTT 360 (TC), TC02046 and a recent change of policy by HMRC in respect of property transactions that now qualify as a Transfer of a Going Concern (‘TOGC’) for VAT purposes, SDLT may be repayable.
This change of policy has a retrospective effect, so property transactions undertaken in the last four years should be reviewed to assess whether it is possible to claim back the additional SDLT suffered.
VAT that has previously been restricted due to the fact that TOGC treatment was not previously thought to be available will also be repayable.
Change of TOGC
In July, HMRC published their change of policy in respect of TOGCs within HMRC’s Brief 27/14. This change follows on from the Tribunal decision under the Robinson Family case in 2012. Under the revised guidance, HMRC now accept that a TOGC can arise in following the circumstances:
– Tenant sublets his interest and then surrenders his headlease interest, with the benefit of the underlying leases, back to the landlord.
– A trader, such as a retailer sells their trade or business to the landlord and surrender their interest in the property.
In both of the above scenarios, SDLT may well have arisen where the landlord has made a payment for the surrender of the lease and this SDLT will previously been based on a VAT inclusive price.
Granting of leases
Under HMRC Brief 30/12, the granting of lease could only qualify as a TOGC where it related to a property letting business. However, HMRC have now confirmed that, provided certain conditions are met, such as the interest retained by the transferor is no more than 1% of the property, then TOGC can also apply where a trader such as a retailer disposes of their retail business and transfers the property via a grant of a lease. HMRC have also confirmed that the 1% interest only applies to the relevant part of the building being let, rather than the value of the building as a whole.
Again, where the landlord has paid consideration for the granting of this lease, SDLT will have previously been based on a VAT inclusive price.
New Development of Dwellings, Relevant resident and charitable buildings
The first grant of a major interest in a residential or relevant charitable property is generally zero-rated and such a grant is often used to preserve the VAT recovery of the development costs. However, HMRC previously took the view that a “person constructing status” did not move to a person acquiring a completed building or charitable development that is transferred as a TOGC and therefore such an acquirer was not able to make a zero rated supply through the subsequent granting of a major interest in the property. However under the new briefing, this position is reversed with retrospective effect.
If you or your clients fall into this category you should review whether any input VAT has previously been restricted due to the grant of such a lease being treated as exempt, as this could now be reclaimed.
For further details regarding SDLT and property transactions, please contact Caroline Fleet, Head of Property Tax on 020 7182 4760 or firstname.lastname@example.org.
For further details regarding VAT, please contact Vaughn Chown, Head of VAT on 020 7182 4748 or email@example.com.