TOGC rules for selling a let commercial property

Selling a let commercial building can be a transfer of a going concern, so no VAT is charged, but only if a property rental business genuinely passes to the buyer and the normal TOGC conditions are met. Where the seller has opted to tax, or is selling the freehold of a commercial building under three years old, the buyer must also have opted to tax and notified HMRC, and have told the seller that its option will not be disapplied, all by the relevant date, which is normally completion but can be earlier if a deposit creates a tax point.

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When is selling a let building a transfer of a business?

The general TOGC conditions are covered in VAT and the transfer of a going concern. This page deals with the property rental business. Notice 700/9, paragraph 6.1, and HMRC’s manual at VTOGC7050 say a rental business is transferred where:

you sell the freehold with the benefit of an existing lease, even if the building is only partly let and you occupy or leave vacant the rest;
you assign a lease with the benefit of a sublease;
the tenant is in a rent free period, or has signed a lease but not moved in;
there is a signed agreement for lease that passes to the buyer, even though the lease itself is not yet signed;
you own several let properties and sell one let or partly let property to another investor.

A small amount of letting can be enough. VTOGC7150 refers to a tribunal case where one floor of a three storey building was under heads of terms, but where only a fraction of a site produces income, such as an advertising hoarding or a substation, it is a matter of degree. A whole portfolio sold together can be a single TOGC even if some properties are empty.

When is it not a TOGC?

Notice 700/9, paragraph 6.2, and VTOGC7050 rule out these common cases:

A developer that is only marketing a building for let, or allowing temporary occupation with no right to stay after a sale, has no rental business to transfer.
A sale of the freehold to the tenant who leases the whole building is not a TOGC, because the tenant does not carry on the letting business. A sale to one of several tenants, with the other leases passing, can be.
Granting a lease while keeping an interest worth more than 1% of the property’s value immediately before the transfer is treated as too complex to be a TOGC. VTOGC6250 applies this test property by property, or to the relevant floor where only part of a building is sold.
Back to back sales from A to B to C completed by one transfer are a series of immediately consecutive transfers, so none is a TOGC, even if the beneficial interest moves on the same day.

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What extra conditions apply to the building itself?

Article 5(2) of the VAT (Special Provisions) Order 1995 excludes the building from TOGC treatment where the sale would otherwise be standard rated because the seller has opted, or because it is the freehold of a new commercial building, unless the conditions in article 5(2A) are met. The buyer must, no later than the relevant date:

have opted to tax the property with effect from that date and given HMRC the written notification required; and
have notified the seller that article 5(2B) does not apply to it, meaning its own option will not be disapplied under the anti avoidance rule in paragraph 12 of Schedule 10 to the VAT Act 1994.

Article 5(2B) is aimed at a buyer for whom the building will be a capital goods scheme item and whose supplies would be exempt because it, a funder or a connected person will occupy the building for exempt purposes. For how that rule works, see option to tax anti avoidance for connected occupiers.

VTOGC6100 confirms the buyer does not need to opt where the sale would be exempt anyway, for example because the seller never opted on a building more than three years old, or would be taxable regardless of any option. If the buyer needs HMRC’s permission to opt, Notice 742A, paragraph 11.2, says permission must have been granted by the relevant date. Article 5(3) extends these rules to a relevant associate of either party in a VAT group.

What is the relevant date?

It is the date the sale of the building would have been treated as made if it were not a TOGC: its time of supply. That is normally completion. But a deposit paid to the seller or the seller’s agent at exchange creates a tax point, and the relevant date is then the date of the deposit. A deposit held by an independent stakeholder does not create a tax point until it is released to the seller. VTOGC6200 adds that if the conditions are not met when the deposit is paid, the rest of the price fails too, even if the buyer opts before completion. See VAT on deposits.

Notice 700/9, paragraph 2.3.2, says a posted notification must be properly addressed, prepaid and posted by the relevant date. Notice 742A, paragraph 4.2.3, says registered businesses can email the Option to Tax National Unit and receive an automated reply showing the date of receipt, which is useful evidence.

What evidence should the seller hold?

The seller is responsible for the VAT treatment. Notice 700/9, paragraph 2.3.1, suggests asking for a copy of the buyer’s option notification and getting the article 5(2B) statement in writing. Article 5 does not set a form for that statement, but VTOGC6200 says it is in the seller’s interest that it is unambiguous. A seller who receives the statement and meets the other conditions can treat the sale as a TOGC, and HMRC says it should not seek output tax from that seller if the statement turns out to be wrong, unless the seller was complicit.

What happens if a condition is missed?

If the buyer misses either step, the building falls outside the TOGC and the seller must charge VAT on it, although the other business assets can still qualify (Notice 700/9, paragraph 2.3.3). The reverse error is also costly: if VAT is charged on a sale that was a TOGC, the buyer cannot reclaim it as input tax because there was no taxable supply, and the seller must refund it, normally by credit note.

VTOGC6100 offers one route back. Where VAT was charged in error and no statement was given, HMRC will accept that the requirement was met if the parties can show that article 5(2B) did not in fact apply at the time.

What passes to the buyer?

Because there is no supply, VAT rights and obligations travel with the building. The buyer takes over any capital goods scheme adjustments for the remaining intervals and the seller should pass on the details (Notice 742A, paragraph 11.6). Rent apportionments at completion are outside the scope of VAT (Notice 700/9, paragraph 2.4). Where a nominee buys for a named beneficial owner, the optional statement of practice in section 8 lets the parties treat the beneficial owner as the buyer, so it is that owner’s registration and option that are checked.

What does it look like in practice?

Illustration only. An investor that opted to tax sells a let shop for £800,000. The buyer emails its option notification to HMRC the week before exchange and gives the seller a signed statement that its option will not be disapplied. The 10% deposit goes to the seller’s solicitor as stakeholder. Everything is in place before any tax point, so the sale is a TOGC and no VAT is charged. Had the buyer paid the deposit to the seller’s agent before notifying its option, the whole sale would have been standard rated, adding £160,000 of VAT at 20%.

What mistakes come up most often?

Opting after exchange where the deposit already created a tax point.
Forgetting the article 5(2B) statement, which is a separate legal requirement from the option.
Selling to the sole tenant and assuming TOGC treatment applies.
Selling an empty building that is only being marketed for let.
Not agreeing in the contract who bears VAT if HMRC disagrees.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.