Option to Tax notification and TOGC
Tax Question
Our VAT registered client is to buy a currently tenanted commercial property which they will continue to rent to the existing tenant. The seller is VAT registered and has opted to tax and so our client needs to opt to tax before transfer in order for the sale to be a TOGC. However, the seller’s solicitor is asking for proof that my client has opted to tax. What proof can I provide?
Tax Answer
Section 2.3.1 of VAT Notice 700/9, which provides guidance on option to tax in a TOGC situation, advises that the seller, or more usually the sellers solicitor, must be satisfied that the buyer has an option to tax in place by the relevant date of the transfer and the document usually requested is a copy of HMRC’s letter acknowledging receipt of the buyer’s option to tax.
However, further guidance issued by HMRC at the start of 2023, see link below, confirms that from 1 February 2023, HMRC will no longer be sending any letter confirming receipt or notification of an option to tax.
So where does that leave your client in regard to proving that their option to tax has been notified and that their option to tax ‘in place’ if HMRC are no longer sending out acknowledgement letters?
The first part of the answer is at section 4.2.4 of VAT Notice 742A (Opting to Tax Land and Buildings) which confirms that an “option to tax has legal effect even if HMRC does not acknowledge receipt of your notification”.
Therefore, as long as the option to tax has been notified to HMRC showing the effective date of the option to be on or before the relevant date of the transfer, then that option to tax has legal effect and so is ‘in place’.
The second part of the answer is found in the guidance in the link above, which confirms that if the option to tax notification is sent to HMRC’s National Option to Tax Unit using the email address given in that guidance, an automated response will be received showing the date the notifications was received. However, notifications sent in any other way will get no acknowledgement or receipt.
This automated email response plus a copy of the option to tax notification sent to HMRC should therefore be sufficient to prove that the option to tax has been notified etc.
Of course, solicitors may not be aware of the changes to HMRC’s practices, so may still ask for the acknowledgement letter and so may need educating on it during the TOGC process but it does seem more vitally important now to send the notification by email as above.
Related Tax Questions
Changes to NI and Employment Allowances
National Insurance – what’s changed?
Gifting Property to Children – Navigating the Gift with Reservation (GWR) Rules
My clients, a husband and wife, are considering gifting one third of their jointly owned property to their child in order to reduce the future inheritance tax liability on their estate. Would this
P11D and P11D(b) Late Filing
What is the P11D deadline and what are the penalties if submitted late?
Joint Rental Income
My client is a husband and wife who are purchasing a rental property by way of a mortgage. The legal ownership will be 50:50 in joint names, and the agreement will be recorded on the land registry
Salary Sacrifice and P11ds
Q.: My client has entered into a salary sacrifice agreement with his employees for the provision of company cars. What do I need to declare on the upcoming P11D?
A Mexican Standoff – Sub-Sale Relief Simplified
Acting as an intermediary for property buyers and sellers – perhaps as an estate agent or as a property trader – comes with its own unique risks, whether it’s a buyer falling through on t
Real people, real results
Vantage Fee Protect provide market leading Tax Fee Protection
Insurance schemes through accountants.
Don’t be shy,
get in touch
Vantage Fee Protect provide market leading Tax Fee Protection
Insurance schemes through accountants.
"*" indicates required fields