InHaymarket Media Group Ltd v HMRC [2022] UKFTT 168 (TC) (18 May 2022), the FTT found that the sale of a property was not a transfer of a going concern (TOGC) for VAT purposes, because on a true analysis of the transaction, there was not a transfer of a property development business, nor of a property lettings business.
The sale was of the freehold of the property and the seller had exercised the option to tax. Prior to the sale, the property had been subject to two leases, one to a company in the seller’s group, the other to a third party film company. Both of these leases were terminated prior to the completion of the sale.
The seller had obtained planning permission so that it could sell the site with the benefit of planning consent, and the buyer’s intention was to develop the property. A few weeks before contracts were exchanged, the parties agreed to enter into arrangements designed to obtain TOGC treatment, namely to enter into new leases over a part of the site. The freehold was then sold subject to these new leases with the intention that this would be treated as a transfer of a property letting business. One of the tenants was the buyer’s property adviser and the rent was reimbursed by the buyer. The other tenant was the buyer’s demolition contractor, who needed access to the site in any event to commence the buyer’s works.
The seller argued before the FTT that it was carrying on both a property development and a property lettings business, and that these were transferred to the buyer as a TOGC.
The FTT rejected both of these contentions and found that there was no TOGC, and that as a result VAT was due on the sale price. The seller was not carrying on a property development business because the commercial reality was that the buyer wanted to start with a clean slate and be in full charge of the development; it was not taking over a development project that had been started by the seller. There was also no TOGC of a property lettings business because the parties had been clear that the subject matter of the transaction was a title with vacant possession, and the new leases were entered into purely to structure the transaction as a TOGC.
Why it matters: HMRC did not argue that the transactions were abusive, but the FTT’s analysis referred extensively to the importance of adopting a substance over form approach. While not suggesting that the leases that were entered into for the purpose of obtaining TOGC treatment were artificial, the FTT did not shy away from deciding that these did not create ‘true’ tenants for the purposes of the TOGC analysis.
The buyer in this case was able to recover all of the VAT that was chargeable on the transfer. The real tax at stake was the additional SDLT that was due in the absence of TOGC treatment. This illustrates how the analysis of one tax can determine the incidence of another.
InHaymarket Media Group Ltd v HMRC [2022] UKFTT 168 (TC) (18 May 2022), the FTT found that the sale of a property was not a transfer of a going concern (TOGC) for VAT purposes, because on a true analysis of the transaction, there was not a transfer of a property development business, nor of a property lettings business.
The sale was of the freehold of the property and the seller had exercised the option to tax. Prior to the sale, the property had been subject to two leases, one to a company in the seller’s group, the other to a third party film company. Both of these leases were terminated prior to the completion of the sale.
The seller had obtained planning permission so that it could sell the site with the benefit of planning consent, and the buyer’s intention was to develop the property. A few weeks before contracts were exchanged, the parties agreed to enter into arrangements designed to obtain TOGC treatment, namely to enter into new leases over a part of the site. The freehold was then sold subject to these new leases with the intention that this would be treated as a transfer of a property letting business. One of the tenants was the buyer’s property adviser and the rent was reimbursed by the buyer. The other tenant was the buyer’s demolition contractor, who needed access to the site in any event to commence the buyer’s works.
The seller argued before the FTT that it was carrying on both a property development and a property lettings business, and that these were transferred to the buyer as a TOGC.
The FTT rejected both of these contentions and found that there was no TOGC, and that as a result VAT was due on the sale price. The seller was not carrying on a property development business because the commercial reality was that the buyer wanted to start with a clean slate and be in full charge of the development; it was not taking over a development project that had been started by the seller. There was also no TOGC of a property lettings business because the parties had been clear that the subject matter of the transaction was a title with vacant possession, and the new leases were entered into purely to structure the transaction as a TOGC.
Why it matters: HMRC did not argue that the transactions were abusive, but the FTT’s analysis referred extensively to the importance of adopting a substance over form approach. While not suggesting that the leases that were entered into for the purpose of obtaining TOGC treatment were artificial, the FTT did not shy away from deciding that these did not create ‘true’ tenants for the purposes of the TOGC analysis.
The buyer in this case was able to recover all of the VAT that was chargeable on the transfer. The real tax at stake was the additional SDLT that was due in the absence of TOGC treatment. This illustrates how the analysis of one tax can determine the incidence of another.
