A Budget change, allegedly targeted at
anti-avoidance, has a much wider application.
Brief details are in C&E Budget Notice
30/04, which is still available on their web site. I have to say that
the rules are complex, and C&E have more recently published their
Business Brief 12/04.
The situation will arise where a
commercial property, which is opted to tax, is sold as part of a
business. Ordinarily, a TOGC (Transfer of a Going Concern) will
occur only where the purchaser also opts to tax.
If the purchaser fails to opt, then
there is no TOGC, and output tax is chargeable on the sale. (I am
assuming the other TOGC conditions are fulfilled.) However, an option
can be disapplied where the property is to be put to exempt use
following its transfer, or where the property is to be converted for
residential or charitable use.
The new rules will affect those
situations where there is expected exempt use following transfer, and
the property will become a Capital Item, i.e., is valued at over
The transferee is required to notify
the transferor, prior to the transfer, that the property will not
become an exempt sale, otherwise the TOGC conditions are not
fulfilled, and the sale will attract VAT at the standard rate, which
will not be recoverable. T
he new rules will also affect those
situations where a sale of a property, separate from a business, is
followed by another immediate sale. Again, an option to tax may be
disapplied in such circumstances.
The Business Brief refers to the
possibility of obtaining a pre-transaction ruling, or clearance, from
C&E. This may well be advisable in a complex or doubtful case, to
provide some certainty to all parties.
[Refs; VAT Act 1994, Sch 10, para 2;
SI 1995/1268, art 5.]