The First-tier Tribunal (tribunal) has held that VAT transfer as a going concern (TOGC) treatment was available where the appellant had to sell its interest in property by way of sub-lease, rather than assigning its interest in the head lease.

This is due to alienation restrictions in that head lease. The tribunal looked to the substance of the transaction, rather than its legal form, and found that the transferee could carry on the same letting business as the transferor without restriction. The asset in the case of Robinson Family Ltd v HMRC [2012] UK FTT 360 was the right to use the property in the same way, and to the same extent, as the transferor, notwithstanding that, technically, a new asset had been created rather than the existing one being transferred.

Analysis

The decision overturns long-standing published Revenue practice. The Revenue has always taken the view that where a new asset is created (in this case, the grant of a lease) there cannot be a "transfer". The key question posed by the Tribunal was whether the transferee is effectively in the same position as the transferor in terms of the business that it carries out, regardless of the legal form of the interest held. What appears to be determinative is whether the transferee can do everything that the transferor does. The Tribunal considered that very small differences (such as the appellant's three-day reversionary interest in this case) would not be fatal, but it would be advisable for the transferee to ensure that its rights mimic those of the transferor as closely as possible. This decision should open up the possibility of TOGC treatment to those parties that are unable to replicate the technical, legal form of the transferor's interest in transferred property due to restrictions placed on alienation by the transferor by a person with a superior interest.

Future Transactions

Clearly, it will be advisable where possible, to continue following the Revenue's practice as regarding TOGCs. However, where it is not possible because, for example, of restrictions effecting the land interest consideration should be given to mimicing the existing land interest as closely as possible.

Tax Refund

If you have been involved in similar circumstances within the last four years it may be worth putting in a VAT refund claim on the basis that no VAT due. If this is accepted it will also be worthwhile to put in a refund claim for overpaid SDLT.