Transferee’s option to tax

Clark Hill Ltd – FTT decision

The taxpayer’s business activity was property investment. At the end of 2013 the taxpayer looked to sell 4 opted properties. The taxpayer argued that these should be treated as falling under the TOGC provisions. HMRC disagreed and assessed for output tax. The dispute concerns whether the transferee had notified HMRC of its option to tax in time. There was no dispute that the other conditions for TOGC treatment were met.

The facts for the properties are not the same but all involve deposits being paid before completion.

The main legislation is the Value Added Tax (Special Provisions) Order 1995. Article 5 sets out the rules and conditions for treating a supply as a TOGC. Paragraph 2 and 2A essentially lay down that an opted property will not be treated as a TOGC unless the transferee has notified HMRC of an option to tax and notified the transferor before the relevant date. The relevant date is set out in Article 5(3):

“relevant date” means the date upon which the grant would have been treated as having been made or, if there is more than one such date, the earliest of them;

The main point concerned the definition of ‘relevant date’. Both parties referred to the Higher Education Statistics Agency Ltd [QB 2000] (HESA). This involved the sale of an opted property. The purchaser paid the deposit to the seller’s solicitors on the date of the auction. The deposit was held as agent for the seller. The purchaser exercised the option to tax over its interest in the property and notified HMRC before the date of completion, but after the date on which the deposit was paid. In reaching the conclusion that the TOGC provisions could not apply to the transfer, Moses J decided that the relevant date was the date on which the deposit was received. Following HESA, the FTT therefore dismissed the taxpayer’s first argument, that the relevant date is not when the deposit is received but when the balance is received on completion. The taxpayer’s second argument was that there were two relevant dates (deposit and completion). Whilst agreeing with the taxpayer that this point was not decided in HESA, the FTT concluded there could only be one date. The FTT considered that there are two dates on which the grant is treated as having been made – in part on the date on which the deposit was received and in part on the date on which the transfer was completed. The FTT was of the view that the ‘relevant date’ is the earlier of those two dates i.e. the date on which the deposit is received by the seller.

In terms of two of the properties (Byker and Hayes) this decided the case against the taxpayer. The purchaser exercised the option and notified HMRC after the date when the taxpayer’s solicitors received the deposit. There were some differences regards the other properties.

Havant – This was another sale at auction where the purchaser paid a deposit to the auctioneers. However, there was a delay of 13 days until the funds were transferred to the taxpayer’s solicitor. HMRC argued the auctioneers held the funds as agent for the seller and therefore this is the relevant date. The FTT concluded that the auctioneer held the monies as stakeholder until the funds were transferred to the taxpayer’s solicitors. This was the relevant date and was after the transferee had informed HMRC of its intention to opt to tax. The sale of this property therefore met the conditions of a TOGC.

Henley – A contract was entered into with an individual, who paid a deposit. Subsequently the contract was novated and the building sold to a third party. The initial deposit was kept by the taxpayer’s solicitors and taken into account when the final amount was paid at completion. The FTT found for the taxpayer that the relevant date was when the contract was novated. Unfortunately for the taxpayer whilst the option was in that case notified to HMRC in time it had an effective date of one day after the novation (completion date). The time line in January 2014 was:

6th - Option to tax exercised

7th - Notified to HMRC

9th - Date of novation (relevant date)

10th - Completion and date option to tax was stated by purchaser to be effective from.

In absence of a valid option being in place on the relevant date, the FTT concluded the TOGC conditions were not met.



This is complex case with a number of different fact patterns. It does however, highlight some potential issues to watch out for with regards to the relevant date. The most obvious is to establish whether deposits are involved and who is holding them and in what capacity. Payments to the seller or their solicitors acting as agent will trigger a relevant date. The property with the novation highlights the FTT’s view that the relevant date is that of the novation though other alternatives are considered. This conclusion would have saved the taxpayer but for the transferee giving a future effective date for the option, just 1 day after the relevant date. This again highlights the importance of the correct VAT treatment. The VAT was probably fully recoverable by the purchaser. However, where it concerns properties, the inability to apply the TOGC relief can often result in a higher irrecoverable Stamp Duty cost as it is calculated on the VAT inclusive amount, where VAT is due.