Tax Bite: Relaxation of property TOGC rules – potential SDLT reclaims

There is a potential opportunity for reclaims of SDLT (and possibly irrecoverable VAT) in respect of the acquisition of leasehold interests in land and property.

Previously if a business granted a new long lease in property, HMRC’s view was that the VAT TOGC provisions would not apply. VAT would therefore be charged and SDLT paid on the VAT inclusive amount.

While the business would usually reclaim the VAT, any additional SDLT paid would represent a real cost to the purchaser.

In the recent case of Robinson Family Limited, the taxpayer company successfully argued that the TOGC rules should apply as leasehold interests effectively mirrored the headlease (in this case the sublease was granted for a period of only three days less than the headlease).

HMRC have now confirmed that the TOGC may apply if the interest being granted represents 99% or more of the value of the headlease, provided that all the other conditions are met. It may therefore be possible to reclaim any irrecoverable VAT and SDLT on transactions which would have met these conditions. Please see the attached flyer which provides an illustrative example.

The claim needs to be made within 4 years from the date the lease was granted.




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