Transfer of a going concern (TOGC): when no VAT is due on a commercial property sale

A transfer of a going concern is the transfer of a business as a live, operating concern rather than a sale of individual assets. When the conditions in HMRC's guidance are met, the transfer is treated as neither a supply of goods nor a supply of services, so it is outside the scope of VAT. In plain terms, the seller does not charge VAT and the buyer does not pay it.

The rules apply to whole businesses and to self contained parts of a business that can operate independently. For property, the most common example is an investment property that is already generating rent. Because the building is sold with its tenancies in place, the buyer steps into an existing property letting business and keeps it running, which is the essence of a going concern.

No, provided every condition is satisfied. A genuine TOGC is outside the scope of VAT, so nothing is added to the purchase price and there is no VAT for the buyer to reclaim later. That is the whole point of the treatment: it avoids money changing hands for VAT that would only be refunded again.

If any condition fails, the fallback position is that the supply of the property is treated as a normal supply. Where the seller has made an option to tax and the sale is therefore standard rated, VAT of 20% is due on the price. Where no option to tax is in place, the sale of an older commercial property is usually exempt. This is why confirming the TOGC status early, with your solicitor and accountant, has a direct effect on your funding.

HMRC sets out clear conditions that must all be met for the transfer to qualify. For a commercial property sale the key ones are:

• The assets are sold as part of a business that is a going concern, and the buyer intends to use them to carry on the same kind of business.
• There is no significant break in the normal trading pattern before or immediately after the transfer.
• Where the sale would otherwise be taxable, the buyer is VAT registered, or liable to be registered, at the point of transfer.
• If the seller has opted to tax the property, the buyer must also opt to tax and notify HMRC by the relevant date, and must confirm the option is not disapplied in their hands.
• The property is let, so an existing letting business actually passes to the buyer, rather than an empty building being sold with vacant possession.

These are the headline points, not the full picture. HMRC's guidance contains further detail, and the treatment can turn on small facts, so confirm the position with your solicitor and accountant before you commit.

The option to tax is the choice a seller makes to charge VAT on a commercial property that would otherwise be exempt. It is central to whether a property sale can be a TOGC. If the seller has opted to tax, the buyer generally has to match that position: they must exercise their own option to tax over the same property and notify HMRC, usually by the date of the transfer, and confirm that the option will not be disapplied for them.

If the buyer does not opt to tax when they should, the TOGC treatment can fail. The sale then becomes standard rated and VAT of 20% falls due on the purchase price. That is a large sum to find on completion, which is exactly the scenario a VAT bridge is designed to cover until HMRC pays the refund.

Most failed TOGCs come down to a handful of avoidable mistakes:

• Missing the option to tax deadline. The buyer opts to tax too late, or forgets to notify HMRC, so the conditions are not met at the point of transfer.
• A break in trading. If tenants leave and the building is sold empty, there may be no letting business to transfer.
• Different use of the assets. If the buyer plans to occupy the property themselves or redevelop it rather than continue letting, it may not be the same kind of business.
• Registration gaps. The buyer is not VAT registered in time on a sale that would otherwise be taxable.
• Vague contracts. The sale documents do not clearly record that the parties intend a TOGC, or how VAT is dealt with if HMRC disagrees.

Because the tax treatment can swing on these details, the safest approach is to have the contract reviewed and the VAT position confirmed in writing well before completion.

If a sale you expected to be a TOGC turns out to be standard rated, VAT of 20% becomes payable on top of the price, often at short notice. On a commercial property this can be a very large amount to fund on the day.

This is where a VAT bridging loan comes in. A VAT bridge is short term finance that funds only the VAT element, so you can complete without tying up the rest of your capital or delaying the deal. As a VAT registered buyer, you reclaim the VAT on your next VAT return, and the HMRC VAT refund repays the bridge, usually within one to three months. We arrange VAT bridging finance for exactly these situations, alongside the main commercial mortgage or bridging finance on the purchase itself.

Responsibility is shared, but it sits mainly with the buyer and seller and their professional advisers. The seller decides how to treat the sale and whether they have opted to tax. The buyer must meet the conditions that apply to them, such as registering for VAT and opting to tax in time. Both parties' solicitors should make sure the contract records the TOGC intention and deals with what happens if HMRC takes a different view, often through a clause requiring VAT to be paid if the treatment is challenged.

Your accountant confirms the VAT analysis and the mechanics of any reclaim. We are a finance broker, not your tax adviser, so our role is to have VAT bridging finance ready in case VAT does fall due, while you confirm the technical position with the people qualified to give tax advice.