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Changes in policy for TOGCs

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HMRC has published Revenue and Customs Brief 27/14, which explains three changes in policy affecting TOGCs, including property, as follows.

  • Lease surrenders: Where a lease is surrendered as part of the transfer of a business, the buyer is the landlord, and the lease normally merges with the landlord's existing interest in the land. HMRC has therefore historically taken the view that such a transfer does not qualify for TOGC treatment. Following Robinson Family [2012] UKFTT 360, this policy has now changed (as announced in Revenue & Customs Brief 30/12). TOGC treatment can therefore apply when a tenant sells his business to his landlord and, as part of the transaction, surrenders his lease. Although the change of policy is immediate, taxpayers can delay its application for four weeks from the date of the brief (8 July 2014). The brief also covers the implications for past transactions; some businesses may be entitled to repayments of VAT and SDLT in relation to transfers which should have qualified as TOGCs.
  • Grants of leases: The grant of a lease can also be a TOGC, for example, where a retailer disposes of the retail business but transfers the premises by granting a lease. Moreover, the brief confirms that if the value of the reversion is no more that 1% of the total value of the property, the grant can still be a TOGC. Where a lease is granted in relation to part of a building only, the calculation must be made by reference to that part only.
  • New developments of dwellings, relevant residential and relevant charitable buildings: The first grant of a major interest (freehold sale or long lease) in residential or relevant charitable property by the ‘person constructing’ is generally zero-rated. HMRC has traditionally taken the view that ‘person constructing’ status does not move to a person acquiring a completed building that is transferred as a TOGC. However, following recent cases suggesting that this disparity in treatment could be in breach of the EU principle of fiscal neutrality, HMRC has now changed its policy. A person acquiring a completed residential or charitable development as part of a TOGC inherits ‘person constructing’ status and is capable of making a zero rated first major interest grant in that building or part of it provided that certain conditions are satisfied. Again, this new policy may lead to repayment claims in relation to past transactions.
Issue: 1225
Categories: News , Corporate taxes