Transfer of Going Concern

[craig511]

Keep it simple people.


I’m almost done acquiring domestic BTLs, now looking to commercial stuff.

For a lot of properties where there is a commercial tenant in situ, ( like a bookies or whatever) its states in the add ,

“However it is anticipated that and sale will be treated as TOGC”.

Now my current Ltd co is not vat registered because it doesn’t need to be.

What are the implications for me buying a property with this statement in the ad?
What are the implications for me? I know nothing really about VAT as I’ve never dealt with it. The rent received is approx £50k a year.

[Rufus Stone]

Your options are:

1. Pay the VAT, and SDLT on the VAT, and be done with it.

2. Register your Ltd for VAT, opt to tax the property, don't pay the VAT, don't pay SDLT on the VAT, but have to charge VAT on the rent, file quarterly VAT returns and pay the VAT collected.

[Sunday Drive]

Keep in mind that your commercial tenant of the commercial property will probably will be VAT registered themselves.

This means they won’t mind you charging them VAT on the rent because they will reclaim it.

[LooneyTunes]

You seem to be assuming that the property you’re considering buying is opted in for VAT, which may not necessarily be the case.

It is possible that the the TOGC wording means that the vendor doesn’t want to sell the property but instead wants to sell the company that owns the property. If so, this may be advantageous from a tax perspective but is likely to also result in the transfer of any historic liabilities that company has. Not necessarily a red flag, but you would need to properly DD.

The statement and VAT situation are things to seek clarification about from the vendor’s agent.

[Eric Mc]

What are you buying -

The business that operates within a property as a tenant?

The property on its own but not the busienss?

The business and the property?

[2HFL]

Sounds to me like the OP is considering a commercial property (freehold/long leasehold) with a tenant in situ, thereby inheriting the occupational agreement, associated rental income and any other landlord liabilities / responsibilities as defined in the lease.

[craig511]

Thanks all for the replies.

So yes, I am looking at buying a commercial property which has approx 8 tenants in situ.

The add states there is no VAT to pay and as each unit within the building is less than the threshold, no rates to pay.

Happy days.

But then I see the statement about it being sold as a glijg concern and from a buyers point of view I don’t understand how that impacts me.

And then I see some ads where there vat is applicable as well as being sold as a going concern.

If I were to make an offer, I would get a survey done on the building and DD on the tenants and the leases ( can you pay someone to do all that? )

[craig511]

Here’s an example

https://images.loopnet.co.uk/d2/eco51EG_Sk6DmsJr-K...

[Rufus Stone]

craig511 said:

Here’s an example

https://images.loopnet.co.uk/d2/eco51EG_Sk6DmsJr-K...

Typically poorly drafter particulars.

It's only VAT free if the purchaser is VAT registered and opts to tax, otherwise VAT is chargeable.

[craig511]

Ok yes, so if I wasn’t vat registered then I’m paying 20% vat on the sale price.

Fine.

Am I reading too much into this? I still not clear what impacts, if any, buying a TOGA has on me apart from taking on existing liabilities and bad tenants.

Edited by craig511 on Wednesday 17th April 12:58

[Eric Mc]

Clarify please -

are you buying the building (leasehold/freehold)?

has the seller "Opted to VAT" on this particular building?

[craig511]

The whole building, which will be freehold.
It comes with tenants in situ.

Don’t know about seller VAT other than what’s on the ad.

[Eric Mc]

Find out about whether the seller has "Opted to VAT" the premises.

If he has, VAT will be charged on the sale price.

If he hasn't, VAT will not be charged on the sale price.

This "Option to VAT" for buildings is independent of whether the seller is registered for VAT for normal trading purpopses.

[craig511]

So, assuming he has, then I pay VAT. Fine

But, if we assume then the tenants are paying vat on their rent, what would I do then?

1/not charge vat so right away they are 20% up.

2/keep the rent the same and pocket the 20% myself, but then the tenants can’t claim that and I’m sure they wouldn’t be too happy.

[Rufus Stone]

craig511 said:

So, assuming he has, then I pay VAT. Fine

But, if we assume then the tenants are paying vat on their rent, what would I do then?

1/not charge vat so right away they are 20% up.

2/keep the rent the same and pocket the 20% myself, but then the tenants can’t claim that and I’m sure they wouldn’t be too happy.

They will be up if they are not VAT registered themselves, or there would be no net change if they are.

I think you need to learn a lot more about commercial property and VAT before you go investing £350,000 in one.

[AnotherUsername]

I’ve done 4 x TOGC and all was great until hmrc decided two had been done incorrectly and it was looking like I had to pay £200k vat and not have the opportunity to claim it back as you would ordinarily. To add further spice my solicitor had just died!
All sorted in the end. Phew

[Eric Mc]

craig511 said:

So, assuming he has, then I pay VAT. Fine

But, if we assume then the tenants are paying vat on their rent, what would I do then?

1/not charge vat so right away they are 20% up.

2/keep the rent the same and pocket the 20% myself, but then the tenants can’t claim that and I’m sure they wouldn’t be too happy.

If the tenants are paying VAT on the rent, then you would be responsible for paying over that VAT to HMRC every quarter. You cannot keep it for yourself.
The good news is that you will be able to reclaim any Input VAT incurred in the costs of running the property or any enhancement work done on the property.

However, if and when YOU sell the property, you must declare the VAT on the sale price too.

[craig511]

AnotherUsername said:

I’ve done 4 x TOGC and all was great until hmrc decided two had been done incorrectly and it was looking like I had to pay £200k vat and not have the opportunity to claim it back as you would ordinarily. To add further spice my solicitor had just died!
All sorted in the end. Phew

Is there a way to check it had been done right upfront? Something in writing from HMRC for example or to set aside VAT “just in case” .

[Eric Mc]

Find out the situation from the vendor. They should know.