Expert VAT services for UK businesses, including registration, returns, advice, and compliance support. Simple, accurate, and stress-free VAT management.
VATMerranti

Selling a Commercial Property? Here’s How to Avoid Paying VAT (and Reduce SDLT Too)

If you own and rent out commercial properties, you’re probably familiar with the process of opting to tax. This lets you recover VAT on property-related expenses—which is often a sensible choice for landlords of commercial buildings.

However, when it comes time to sell one of those properties, the VAT rules can become complicated—and expensive—unless you’re aware of an important tax-saving opportunity called the Transfer of a Going Concern (TOGC).

By using TOGC rules correctly, you can avoid charging VAT on the sale—which can also reduce the Stamp Duty Land Tax (SDLT) the buyer has to pay.

Let’s break it down.

The Usual VAT Rules for Selling Commercial Property

When a commercial property is opted to tax, VAT is usually added to the sale price at the standard rate (20%). This applies even if the buyer is also VAT-registered—they must pay the VAT, reclaim it later, and manage the cash flow in the meantime.

But VAT on a property sale doesn’t just mean cash flow concerns—it also increases Stamp Duty Land Tax (SDLT). That’s because SDLT is calculated on the VAT-inclusive price.

So if you’re selling a £1 million property and have to charge VAT, the buyer ends up paying SDLT on £1.2 million, not £1 million.

Enter: The Transfer of a Going Concern (TOGC)

The TOGC rules offer a way around this. If certain conditions are met, the sale of a property rental business can be treated as “neither a supply of goods nor services” for VAT purposes.

In plain English: no VAT is charged on the sale, even if the seller opted to tax the property.

It’s a win-win:

  • The buyer doesn’t have to pay VAT.

  • There’s no VAT for the seller to account for.

  • And there’s a saving on SDLT because it’s based on a VAT-free price.

When Can TOGC Be Used?

The TOGC rules are available when you sell a property rental business that qualifies as a “going concern”. That means the business is up and running, and the buyer will continue to operate it in the same way after the sale.

To qualify, several conditions must be met.

✅ Basic TOGC Conditions

  1. A business is transferred – either the whole business or a separate part that can run on its own.

  2. The buyer will use the assets in the same kind of business – e.g., the buyer will continue to rent out the property.

  3. The buyer must be VAT-registered or will be registered as a result of the transfer.

For property businesses, a few additional requirements must also be satisfied.

✅ Extra TOGC Conditions for Property Sales

  1. The property must be tenanted at the time of sale. Even if just part of it is let, that’s generally enough.

  2. The buyer must opt to tax the property by notifying HMRC using Form VAT1614A, on or before the transfer date.

  3. The buyer must confirm to the seller (in writing) that their option to tax won’t be disapplied under the anti-avoidance rules in the VAT (Special Provisions) Order 1995, article 5(2A).

What Counts as “Tenanted”?

This is where it gets a bit more technical, but HMRC provides some helpful guidance. Here are **examples where TOGC does apply:

  • The property is currently let and the lease is continuing after the sale.

  • The property is partly let, even if some units are vacant.

  • The sale happens during an initial rent-free period, but a lease is already in place.

  • A lease has been granted, and tenants are due to move in, but haven’t yet.

  • A lease agreement is pending but not yet signed, and the buyer will complete it.

  • A developer sells a mixed site (some let, some unlet buildings) as a package to a single buyer—this may qualify for TOGC on the whole deal.

🚫 When TOGC Does Not Apply

Here are examples where VAT must be charged, because TOGC conditions aren’t met:

  • The seller surrenders the lease just before selling the freehold, even if sub-tenants remain.

  • The buyer is the current tenant of the entire building (there’s no rental business to transfer).

  • The seller is still actively looking for a tenant (no lease has been agreed).

  • The building is occupied only temporarily, and there’s no longer-term rental agreement in place.

If these conditions apply, the sale is a standard taxable supply, and VAT will need to be charged—potentially increasing SDLT as well.

The SDLT Advantage of TOGC

Avoiding VAT isn’t just about better cash flow. One of the biggest benefits of TOGC is the reduction in Stamp Duty Land Tax.

Here’s how it works:

Without TOGC With TOGC
Property Sale Price: £1,000,000 + £200,000 VAT = £1,200,000 Property Sale Price: £1,000,000 (No VAT)
SDLT is charged on £1.2m SDLT is charged on £1m
Higher SDLT Lower SDLT

So, TOGC not only saves the buyer from fronting the VAT—it reduces the total transaction cost.

Important Admin Steps for TOGC

For the TOGC to work, timing and paperwork are critical. Here’s what both seller and buyer need to do:

  • Buyer must opt to tax the property (Form VAT1614A) and send it to HMRC on or before the transfer date.

  • Buyer must write to the seller confirming that:

    • They have opted to tax.

    • Their option will not be disapplied (under anti-avoidance rules).

  • The seller must retain this evidence to show HMRC why no VAT was charged.

Practical Example

Let’s say you’re selling a commercial office building with two floors:

  • Ground floor: Let to a business under a lease.

  • First floor: Vacant, being marketed.

As long as the ground floor lease continues and the buyer intends to let out the vacant unit too, this could qualify as a TOGC, even though the entire building isn’t fully let.

Final Thoughts – Don’t Pay VAT (or Extra SDLT) If You Don’t Have To

The TOGC rules are a valuable tax relief that many commercial property owners and buyers can benefit from—but they’re often overlooked or misunderstood.

With the right planning, you can:

  • Avoid charging (or paying) VAT on the sale;

  • Reduce the amount of SDLT payable;

  • And ensure the transaction remains fully HMRC-compliant.

Need Help Applying TOGC Rules?

At Merranti Accounting, we help property owners, landlords, and investors navigate complex VAT and SDLT rules to save time and money. If you’re thinking of selling a commercial property—or buying one—speak to our expert team first.

We’ll help you structure the deal properly, meet all the conditions, and take full advantage of TOGC relief where available.

Related Post