HMRC in VAT surrender

By Kirsten Prichard Jones

In a very welcome development, HMRC has finally confirmed that the surrender of a lease subject to tenancies can constitute a ‘transfer of a going concern’ (TOGC) with the result that no VAT is payable. This will result in stamp duty land tax (SDLT) savings for landlords accepting surrenders and in certain cases it will be possible to reclaim SDLT that has been overpaid on historic surrenders.

Where property is sold subject to tenancies, this constitutes the TOGC for VAT purposes. The benefit of TOGC treatment is that there is no VAT for the buyer to pay on the purchase price and the buyer’s SDLT bill is reduced accordingly. Until 2012, HMRC took the view that a sale structured as the grant of a lease subject to tenancies could not constitute a TOGC since this was the creation of a new interest, rather than the transfer of an existing asset.

Similarly, HMRC historically took the view that the surrender of an overriding lease could not qualify for TOGC treatment. This was on the basis that the asset used by the transferor (i.e. the tenant) in carrying on his property letting business ceased to exist on completion and therefore there was no ‘transfer’ of a business…

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