HMRC has revised its position on the meaning of ‘entire interest’ in relation to the VAT self-supply charge. The change in policy arises following the Supreme Court decision in Balhousie Holdings Ltd [2021] UKSC 11 in the context of a sale and leaseback of a care home.
A self-supply charge arises where a property has been purchased or constructed at the zero rate of VAT (on the basis of being used for a relevant residential or charitable purpose) and where there is a change in use, or the entire interest is disposed of, within a ten-year period.
Revenue and Customs Brief 13/2021 confirms HMRC’s view that there will be no disposal of the ‘entire interest’ in a property if:
the property was a qualifying property when it was purchased;
on sale there is an immediate lease in place which runs for at least the remaining term of the ten-year period from the original purchase date; and
the property is continually used for a qualifying purposes (meaning that there is no break in trading during the sale and leaseback).
If the above conditions are not met, the sale of the property or the giving up of a long lease within the ten-year period will be subject to the self-supply charge for the remaining term.
In Balhousie, the Supreme Court ruled that the sale and leaseback of the care home did not account for the disposal of the ‘entire interest’ in the property because the simultaneous sale and leaseback meant that Balhousie always had an interest in the property either as owner or lessee without interruption. (See also page 19.)
HMRC has revised its position on the meaning of ‘entire interest’ in relation to the VAT self-supply charge. The change in policy arises following the Supreme Court decision in Balhousie Holdings Ltd [2021] UKSC 11 in the context of a sale and leaseback of a care home.
A self-supply charge arises where a property has been purchased or constructed at the zero rate of VAT (on the basis of being used for a relevant residential or charitable purpose) and where there is a change in use, or the entire interest is disposed of, within a ten-year period.
Revenue and Customs Brief 13/2021 confirms HMRC’s view that there will be no disposal of the ‘entire interest’ in a property if:
the property was a qualifying property when it was purchased;
on sale there is an immediate lease in place which runs for at least the remaining term of the ten-year period from the original purchase date; and
the property is continually used for a qualifying purposes (meaning that there is no break in trading during the sale and leaseback).
If the above conditions are not met, the sale of the property or the giving up of a long lease within the ten-year period will be subject to the self-supply charge for the remaining term.
In Balhousie, the Supreme Court ruled that the sale and leaseback of the care home did not account for the disposal of the ‘entire interest’ in the property because the simultaneous sale and leaseback meant that Balhousie always had an interest in the property either as owner or lessee without interruption. (See also page 19.)
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