Calling all property investors – lessons learnt from the Haymarket Media Group Limited v HMRC [2022] case
Calling all property investors/developers – the recent First Tier Tribunal on the VAT free Transfer of a Going Concern (TOGC) rules may be of interest and there are some interesting lessons to learn.
The case highlights the importance of ensuring that the conditions are met for a TOGC to apply. Here we explain why.
The case background
Haymarket Media Group Limited (HMGL) is the representative member of a VAT group, but the case actually focused on Haymarket Group Properties Limited (HGPL) who is a member within that group. HGPL owned a site, the Teddington site, which was chosen for VAT purposes. The site was jointly occupied by the group as its business premises and by third party tenants
In 2011, one of the tenants of the site, Teddington Studios, exercised a break clause to surrender its lease with an end date in 2014. In 2013, HGPL applied for planning permission to develop the site. Planning consent was granted and allowed for the construction of 213 flats and 6 houses. HGPL’s intention was to sell the site with the benefit of planning consent.
HGPL sold the site to Pinenorth Properties Limited (PPL) for £85m and PPL completed the development. No VAT was charged on the sale on the basis that the transfer was a transfer of a business as a going concern ). Normally the sale of the assets of a VAT registered or VAT registrable business will be subject to VAT at the relevant rate. However, TOGC is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions. Where the sale meets the conditions the supply is outside the scope of VAT and therefore VAT is not chargeable.
HMRC raised a VAT assessment for £17m on the basis that the sale was a supply of an asset which did not meet the conditions for a TOGC.
The main issues of the case
The main issues of the case concerned whether the sale of the property met the conditions for a TOGC, in particular whether HGPL was carrying on a business that PPL continued after the transfer. HGPL stated that they carried on a business prior to the sale consisting of:
HGPL argues that when Pinenorth Properties Limited acquired the assets both with the intention of continuing the property development business as they were undertaking the construction, and the lettings business as the leases continued for months after completion.
The First Tier Tribunal (FTT) disagreed and held that HGPL’s intention was not to carry on a property development business, instead the site was held as an investment to generate passive rental income. From the outset, HGPL’s intention was to sell the site with the benefit of consent to attract the best offer from a developer, and the FTT held that this was clear from the marketing material.
The FTT also found that the costs incurred during the planning application process were simply to enhance the value of the site as an investment, they were not costs to develop. In addition, the commercial reality of the transaction was that neither vendor nor seller wanted the development to go beyond obtaining planning consent
The FTT further found that there was not a TOGC of a property letting business as the site was required to be transferred to PPL with vacant possession. Despite there being minor leases in place at the time of completion, the FTT held that these tenants were connected to and originated from the purchaser and were not true tenants of a property lettings business.
This case highlights the importance of ensuring that the conditions are met for a TOGC to apply. Whilst the VAT due on the sale was recoverable in full by PPL, they were stuck with an additional Stamp Duty Land Tax cost that is not recoverable. It is important when involved in property transactions to take professional advice to ensure the correct treatment is applied and negate any post sale “nasty” shocks!
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