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TOGC relief on investment purchases

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Posted by David Slade on 11 June 2012

David Slade Partner - Head of Real Estate

Transfers of businesses as going concerns (TOGCs) qualify for TOGC relief if certain conditions are met. So what is and isn't a TOGC?

VAT needs to be paid on the purchase price for a commercial property if:

  • The transaction is the sale of a freehold of a new commercial building before completion of its construction, or within three years of practical completion of its construction.
  • The seller has opted to tax the property (elected to waive VAT exemption), as is common.

If one of those scenarios applies, stamp duty land tax (SDLT) would need to be paid not only on the purchase price but also on the VAT that was charged on the purchase price. That could significantly increase the SDLT liability. The highest SDLT rate for commercial property is currently 4%. On property investment sales, it is important to try and take away that additional SDLT liability, by taking away the VAT liability.

Transfers of businesses as going concerns (TOGCs) qualify for TOGC relief if certain conditions are met. If a transaction qualifies for TOGC relief, it is taken outside the scope of VAT so that no VAT is payable. A sale of an investment property is prima facie a TOGC because HMRC sees the act of letting the property and generating income from the rents on the property as being a business carried on from the property.

If the buyer itself opts to tax the property and notifies HMRC of that option before the VAT supply is made to the buyer, the buyer gets TOGC relief; no VAT is payable on the purchase price. Therefore the buyer does not take the additional SDLT hit on the VAT element. The fact that the buyer opts to tax the property before completion means that it will have to charge VAT on the rents payable by the tenants after completion, but most tenants will expect that and should be able to reclaim the VAT from HMRC when making their VAT returns. 


  • Freehold sale of a fully let property
  • Freehold sale of a partially let property - VAT relief available on the whole purchase price even though only part of the property generates income
  • Freehold sale of a partially let property generating no rental income - e.g. because there is a rent-free under the lease. TOGC; total relief available. No rent, but there is a lease; therefore, there is a transfer of a letting business.
  • Freehold sale; agreement for lease but no lease - even if the completion of the lease is conditional on something. HMRC regards this as being sufficient evidence of economic activity for there to be a property rental business being transferred.
  • Freehold sale of property with no tenants other than advertising hoardings/phone masts/substations etc. - HMRC says in its guidance that "providing that the letting constitutes economic activity" and "providing that there is a lease in place", there would be a TOGC in this scenario.
  • Sale of the freehold to an associated company of sitting tenant - TOGC if the new freeholder is not in the same VAT group as the sitting tenant. If it is in the same VAT group, the new freeholder and the tenant are regarded as the same entity for VAT purposes, and there is no TOGC. If there are other, unrelated, occupiers in the building, there may be partial TOGC relief available.

Not a TOGC

  • Freehold sale; heads of terms agreed with the tenant but no agreement for lease or lease - no legal commitment from the tenant; not a transfer of a letting business; VAT payable.
  • Grant of a long lease subject to an occupational lease - i.e. an investment sale by way of the grant of a long lease at a premium rather than a freehold transfer. If the seller transfers the property by granting a 999-year lease, or any length of lease, out of the property, that does not pass on the same interest. It creates a new interest out of the property, and TOGC relief will not be available. A recent European Court of Justice decision on the German case of Finanzamt Ludenscheid v Christel Schriever possibly paves the way for HMRC to take a different view, but it has not done so as yet.
  • Sale of the freehold to a sitting tenant - there would not be a transfer of the same letting business. At the date of the transfer, the letting business falls away, and the new business being carried out is whatever business the tenant is carrying on.
  • Sale of vacant property to an investor; lease granted to the tenant immediately afterwards - not a TOGC as the seller has not carried on a letting business. But it probably would be a TOGC if the deal could be structured so that the lease was granted by the seller before the freehold sale, even if only for a short while. That is likely to turn it into a TOGC.
  • Sub-sales A – B - C - if A sells to B and B turns the property to C, B has not carried on the business, and thus the chain is broken. B has to pay VAT on the price it pays to A, and C has to pay VAT on the price it pays to B. One of the reasons B is doing the back to back deal is probably to avoid paying SDLT on the price he pays to A. That avoidance device is still available on back to backs if they are correctly structured, and if so B probably will avoid the SDLT but not the VAT. C will have to pay the VAT and the SDLT on the price it pays B, but perhaps B and C will have their own deal whereby C shares in some of the SDLT saving B gets on the back to back. The general thinking seems to be that B needs to hold the property for at least three months after the purchase to avoid scuppering TOGC relief. 

Tags: Real estate

About the author

David Slade

Partner - Head of Real Estate

David heads our commercial property team. He specialises in investment property sales and purchases.

David Slade

David heads our commercial property team. He specialises in investment property sales and purchases.

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