6 March 2015

The Upper Tribunal has ruled in the case of the Royal College of Paediatricians that the sale of a property with the benefit of a prospective tenant cannot be treated as a VAT-free TOGC where the tenant is not part of the business of the transferor (vendor).
The prospective tenant in this case was associated with the transferee (purchaser), and the agreement for lease made the grant of the actual lease conditional upon the sale having taken place. The Upper Tribunal decided that the grant of an agreement for lease prior to the sale in this instance did not bring the tenant within the business of the transferor.
The transferor (vendor) having opted to tax, therefore, meant that the sale of the building was taxable.
The litigation is unlikely to be appealed further by the Royal College, however, as HMRC lost on a technicality. They had failed to raise their assessment within the time limits.