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HMRC internal manual

VAT Transfer of a going concern

Land and Property: Special Rules

The option to tax rules  as they apply to transfers of a going concern are set out in Article 5(2) of the VAT (Special Provisions) Order SI 1995/1268 as amended (by SI2004/779).


A buyer needs to opt to tax and notify HMRC of this option if the sale would, absent a TOGC, be taxable as result of it being a freehold new building or under the seller’s option to tax. They do not need to opt if

  1. the property would still be exempt because the option would be disapplied;
  2. the property would be taxable anyway, regardless of an option to tax (e.g., the assignment of a lease on a car park or a warehouse).


Note that in addition to notifying their option to HMRC,paragraph (2A)(b) requires all transferees opting to tax the land or property they acquire to notify the transferor by the relevant date, that their option has not been disapplied i.e. that Article 5(2B) does not apply to them..

Paragraph (2B) applies where:

  1.         the land or building being supplied to the transferee becomes a capital item under the capital goods scheme, or would have been a capital item were they not to be treated as a TOGC; and

  2.         the transferee’s option to tax is disapplied under the anti-avoidance provisions in paragraph 12 of Schedule 10.


If by the relevant date the option to tax has not been notified to HMRC and the transferee has not notified the transferor that his option has not been disapplied, the supply of the property is not de-supplied by the TOGC provisions. This applies to all TOGCs of land and property not just transfers of property rental businesses. For example, if a manufacturer has opted to tax his unlet factory then the sale of the property that is an asset of the business transferred will be a standard rated supply unless the purchaser opts and makes the notifications required. This does not prevent the transfer of all the other assets being de-supplied by the TOGC provisions.

Remember that for the transferor’s option to be in place by the time of the transfer he must have complied with the notification procedure. This is not necessarily the same as the transferee’s requirement to notify the decision to opt. Where someone is required to request permission from HMRC to opt to tax, the earliest effective date of the option to tax will be the date that the permission is granted. So if the seller has not been granted permission by the relevant date, their option is not effective.  However, where the TOGC provisions apply the transfer of the property will not be a supply of goods or services. It does not matter whether the buyer has opted to tax or not, as the seller’s option is not effective at the date of transfer (see 700/9).

Where VAT was charged, a difficulty is that the relevant notification (that an option to tax would not be rendered ineffective), will not normally have been given by the buyer to the seller. This is a legal requirement in articles 5(2A) and 5(2B) of the VAT (Special Provisions) Order 1995, and it is referred to in paragraph 11.2 of Notice 742A: Opting to tax land and buildings.

Provided, however, that the parties can satisfactorily evidence that article 5(2B) did not apply at the time of the transaction and thus the requisite notification could have been given, we will accept that the legal requirement has been complied with.

Details of how to make any adjustments relating to previous VAT Return periods can be found in VAT Notice 700/45 ‘How to correct VAT errors and make adjustments or claims’