Transfer of a Going Concern: Selling Tenanted Commercial Property Without Charging VAT

Selling an opted commercial property normally means charging 20% VAT on top of the price. Where the property is sold with sitting tenants and the buyer intends to carry on letting it, Transfer of a Going Concern treatment can take the sale outside the scope of VAT entirely — but the conditions are precise, and they depend on something the seller does not fully control: what the buyer does before completion.

Why TOGC exists

VAT is a tax on supplies made in the course of business. Selling a business as a going concern, rather than selling off its assets, is not treated as a taxable supply at all — the idea is that the business continues uninterrupted under new ownership, so there is nothing for VAT to bite on. A tenanted commercial property with an ongoing rental income stream is treated as a property letting business for this purpose, not merely an asset, provided the buyer takes it on as one.

Get TOGC right and the seller charges no VAT, the buyer funds no VAT upfront, and — because SDLT is calculated on the VAT-inclusive price where VAT applies — the buyer also avoids paying SDLT on an inflated, VAT-inclusive figure. Get it wrong and the sale reverts to a standard-rated supply after the fact, which is a considerably worse position for everyone than if VAT had simply been charged from the start.

The conditions, and where each one bites

HMRC's tests, set out in VAT Notice 700/9, come down to five things:

• The assets are sold as part of a business as a going concern — the tenancies, income and letting arrangement transfer, not just an empty shell of a building.
• The buyer intends to use the assets to carry on the same kind of business — continuing to let the property, not converting it to owner-occupation or residential use immediately after completion.
• There is no significant break in trading before or immediately after the transfer.
• Where the seller has opted to tax the property, the buyer must also have a valid option to tax in place, covering the same property, before the relevant date.
• The buyer must notify HMRC of their option to tax in writing no later than the relevant date — usually the date of completion, or earlier if payment or possession happens first — and confirm to the seller that this has been done.

The last two points are where most TOGCs fail. See our guide to the option to tax on commercial property for how the 20-year lock-in and the notification process work in isolation — here, the option is not optional if TOGC treatment is wanted, and the buyer's solicitor needs to be chasing it from exchange, not leaving it until the week of completion.

What happens if the buyer opts to tax late, or not at all

If the buyer has not notified a valid option to tax by the relevant date, the TOGC conditions simply are not met. The sale reverts to being a normal, standard-rated supply if the seller had opted to tax the property — meaning the seller now owes output VAT on the sale price to HMRC, even though it was never invoiced or collected from the buyer. Recovering that VAT from the buyer after completion, once the deal is done and both sides have moved on, is a difficult and adversarial conversation that a five-minute filing before completion would have avoided entirely.

This is why TOGC status should never be assumed based on intention alone. Sale contracts commonly include a warranty or condition that the buyer will notify their option to tax by a fixed date ahead of completion, with the sale price mechanics adjusted if that condition is not met — get this drafted properly and the commercial risk sits with the party who controls it.

Partly-let buildings and the Capital Goods Scheme

A building that is only partly let complicates things. Only the let element genuinely reflects an ongoing rental business capable of being transferred as a going concern; vacant space within the same building does not automatically inherit TOGC treatment simply because it sits in the same title. HMRC expects the vacant element to be a genuine part of the same letting business — actively marketed, with a clear intention to let — rather than dead space bundled in to simplify the paperwork. Where a building is meaningfully split between let and vacant space, the sale may need to be apportioned, with TOGC applying to part and standard VAT rules to the rest.

Buyers also need to check whether the property is a Capital Goods Scheme item — broadly, where capital expenditure on the building or a refurbishment exceeded £250,000 net of VAT within the scheme's adjustment period. A TOGC transfers the seller's remaining CGS obligations to the buyer along with the property, meaning the buyer inherits an ongoing VAT adjustment liability tied to how the building is used for the rest of the ten-year period, not just a clean asset. This is a due diligence point that is easy to miss when the headline benefit of TOGC is "no VAT to pay."

Why this matters for developers and investors buying tenanted stock

Investors acquiring tenanted commercial property across Liverpool, Manchester and Cheshire increasingly rely on TOGC to keep acquisition costs down, particularly on larger deals where funding 20% VAT upfront, even if recoverable later, is a genuine cash-flow constraint. The trade-off is that TOGC status depends on actions the buyer's own advisers must take correctly and on time — it is not something the seller can guarantee, however well the property itself is documented. Building the option to tax notification into the transaction timetable from day one, rather than treating it as a completion-day formality, is the single biggest factor in whether TOGC actually holds up.

Common questions

What conditions does a property sale need to meet to qualify as a TOGC?

The buyer must intend to continue the same kind of business, normally letting the property to the existing tenants without a significant break. Where the seller has opted to tax, the buyer must also have a valid option to tax in place and must notify HMRC of it no later than the relevant date, which is usually the date of completion, and must tell the seller this has been done.

Does TOGC reduce the SDLT on a commercial property purchase?

Indirectly, yes. SDLT is charged on the VAT-inclusive price where VAT is due. Because a TOGC means no VAT is charged on the sale at all, there is no VAT-inclusive uplift for SDLT to apply to, so the buyer pays SDLT on the property price alone rather than on the price plus 20% VAT.

What happens if the buyer forgets to opt to tax before completion?

The TOGC conditions are not met, and the sale reverts to a normal supply. If the seller had opted to tax, the sale becomes VAT-standard-rated after the fact, meaning the seller has to account for output VAT they did not charge, and the buyer is left funding VAT that was never priced into the transaction and reclaiming it later, if they can.

Does TOGC apply to a partly-let commercial building?

Only the let part of a property reflects an ongoing rental business capable of transfer as a going concern. Vacant units within the same building do not automatically qualify, and HMRC's guidance requires the vacant space to be genuinely part of the same letting business, for example actively marketed to let, rather than simply unoccupied space bundled into the deal.

This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.

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