What is Transfer Of Going Concern (“TOGC”) and how it can save VAT on purchase of a property

September 29, 2022

Introduction

Securing a transfer of going concern (TOGC) when purchasing a property is a good way to save money by purchasing it as a business asset. Any transaction that qualifies for TOGC avoids paying the value-added tax on that property, provided they fall within the rules of the TOGC. In this article, we’re going to find out what a transfer of going concern, also known as TOGC, is and how it can save VAT on the purchase of a property.

What is the transfer of going concern (TOGC)?

If you buys a property that is registered for VAT “Opted to Tax”, you usually have to pay VAT on the purchase of the property, which is set at 20%. Although this can be reclaimed later, it can present with a stressful strain in the short term on your cash flow. However, in some cases, you can structure the transaction in such a way that the VAT can be avoided entirely, which brings significant savings in the process. This can occur when the seller is transferring a business to the buyer and certain conditions are met, which is known as a transfer of going concern.

There are a few rules that the transaction must adhere to if it wants to enjoy TOGC treatment, including:

• The property buyer must conduct the same type of business that the seller has established with the property. A common example of this is renting a property out to tenants. It’s not restricted to this though, so in some cases, the buyer might occupy the property after buying the seller’s business too.

• If the property seller is VAT-registered, then the buyer must also be VAT-registered.

• If the seller was going to be charged VAT for the sale of the property, then the buyer must choose to tax the property accordingly.

• The property buyer must let the seller know that any option to tax won’t be removed.

One of the biggest appeals of opting for a TOGC treatment is that it allows you to save the cost of VAT on a property purchase. With that said, HMRC doesn’t confirm whether or not a property transaction is suitable for TOGC treatment. As a result of this, it’s always a good idea for both buyers and sellers to bring in the expert advice of a professional to guide the process.

If you require any assistance with property purchases or would like to know more about TOGC treatments for property transactions, get in touch with our team of experts at A2Z Accounting Solutions today at info@a2zaccounting.co.uk.