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Concern for transfers of a going concern?

23 February 2015

Selling or buying a property subject to an existing agreement for lease (AFL) can be outside the scope of VAT as the sale of a property rental business to the buyer, provided it meets the statutory conditions for a transfer of a going concern (TOGC).

However, a recent Upper Tribunal case ruled that there was not a TOGC where the buyer introduced the tenant, who was a previous tenant of the buyer, to the seller, and an AFL between the tenant and the seller formed part of the transaction.

The AFL only became unconditional once the seller agreed to sell to the buyer. Accordingly, it could not be said to be part of the seller’s business as it resulted from the sale, and the seller had no other tenants. The buyer was arguably only arranging the AFL to achieve TOGC treatment. The Tribunal therefore found that TOGC treatment did not apply.

The decision highlights the continued need to view similar tax-advantaged structures with great care.

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