Advanced Taxation (UK) · Value added tax

VAT on Land, Property and Transfer of a Going Concern

Updated 11 October 2026 · Fact-checked

Most supplies of land are exempt from VAT, but the seller can opt to tax a commercial building to make supplies standard-rated. A transfer of a going concern (TOGC) is outside the scope of VAT if strict conditions are met. In the exam, test each condition and then state the VAT effect and cost.

Understand VAT on Land, Property and Transfer of a Going Concern

Land is a special case in VAT. Selling or leasing most land and buildings is exempt. Exempt means no output VAT is charged, but the owner usually cannot recover input VAT on related costs. That is a problem for a landlord who has spent heavily on a building.

There are two main exceptions to the exempt default. The first sale of a new residential building by the person who built it is zero-rated. The freehold sale of a new commercial building, within 3 years of completion, is standard-rated automatically. Otherwise, land and buildings are exempt unless the owner has opted to tax.

The option to tax fixes the recovery problem. An owner can choose to tax a commercial building or piece of land. After that, sales and lettings of it become standard-rated (20%). The owner charges VAT but can recover related input VAT. The option is made by notifying HMRC. It applies to all of the land and buildings within the opted parcel. It can be revoked only in limited circumstances, for example within a cooling-off period of 6 months, or after 20 years. You cannot opt on residential property.

Opting is not always good. Tenants or buyers who cannot recover VAT, such as a bank, an insurer or a charity, bear the VAT as a real cost. They may refuse the lease or offer a lower rent. Opting helps the landlord's input VAT recovery, but you must weigh that against the effect on the customer. Always weigh both sides.

A transfer of a going concern (TOGC) is a different rule. When a business, or a part of it capable of separate operation, is sold as a going concern, the sale is outside the scope of VAT if the conditions are met. No VAT is charged on the assets sold. This saves cash flow for the buyer. If you wrongly treat a sale as a TOGC, the seller may be liable for VAT that was never charged.

The two topics meet when the going concern includes a commercial property that the seller has opted to tax. The buyer's option to tax must be in place, and the buyer must notify HMRC, by the relevant date. The relevant date is the date of the transfer or, if earlier, the tax point. The buyer must also give the seller written notification of the option. If the buyer does all of this, the property element is within the TOGC. If the buyer does not, the property element is not treated as part of the TOGC. The normal land rules then apply to it, and because the seller has opted, that would mean VAT at 20% on the property element.

Key rules to remember

Land supplies: default treatment: Sale or lease of land and buildings = exempt, unless the option to tax has been made or the supply is specifically taxed; Exceptions: freehold sale of a new commercial building (within 3 years of completion) is standard-rated; first sale of a new residential building is zero-rated. Exempt means no output VAT, and related input VAT is generally not recoverable (subject to partial exemption rules).
Effect of the option to tax: Opted property: supplies standard-rated at 20%; Covers all of the land and buildings within the opted parcel. Notify HMRC. Can be revoked only in limited cases, for example within a 6-month cooling-off period or after 20 years. Not available on residential property.
TOGC: core conditions: Business (or separable part) transferred as going concern + same kind of business carried on by buyer + buyer is, or becomes, VAT-registered by the transfer + no break in trading; If all conditions are met, the transfer is outside the scope of VAT. Check each one in the scenario.
TOGC and opted property: If the seller has opted the property, the buyer's option must be in place and notified to HMRC by the relevant date (the date of transfer or, if earlier, the tax point), and the buyer must give the seller written notification of the option; If this is done, the property element is within the TOGC. If not, the property element is not treated as part of the TOGC, and the normal land rules apply to it. State this rule in plain words in the exam.
VAT rate and registration: Standard rate 20%; registration limit £90,000; deregistration limit £88,000; Given in the tax tables. Needed to test whether a buyer is, or must become, registered.

How to solve VAT on Land, Property and Transfer of a Going Concern questions

Use the same order for any question on property VAT or a business sale. It keeps you from missing a condition and earns the application marks.

1Identify the supply. Is it a sale, a lease, or a sale of a whole business? Is the asset land, a building, or a mix?
2Decide the default VAT treatment of the land. Land is exempt unless the option to tax has been made. Watch for the exceptions: the freehold sale of a new commercial building (within 3 years of completion) is standard-rated, and the first sale of a new residential building is zero-rated.
3Check whether the option to tax applies. Has the owner opted? Would opting help recover input VAT? Who is the customer, and can they recover VAT?
4Consider the downside of opting. A tenant or buyer that is exempt or partly exempt bears irrecoverable VAT, which may reduce demand or rent. Remember that the option can be revoked only in limited cases.
5If a business is being sold, test the TOGC conditions one by one against the facts. Say clearly which are met and which are not.
6State the VAT result. Outside the scope with no VAT, or VAT at 20% on the price. Calculate the figure if numbers are given, using the tax table rate.
7Add the practical points: buyer registration, and for any opted property the buyer's option, its notification to HMRC and written notification to the seller by the relevant date (the date of transfer or, if earlier, the tax point). Also note the risk to the seller or buyer if the TOGC treatment is wrong.
8Give a clear recommendation and tie it to the client's circumstances, as professional skills marks reward.

Quickest way: TOGC checklist and option to tax test

When to use it: Use when time is short and the question asks whether VAT is due on a business or property sale.

Write two headings: land and TOGC.
Land: exempt unless opted. Ask who the customer is and whether they can recover VAT.
TOGC: tick off going concern, same kind of business, buyer registered or becoming so, and no break in trading.
If any tick fails, VAT at 20% applies to the standard-rated assets.
If the property is opted, add the buyer's option and notification point.
Finish with the cash flow effect and one sentence of advice.

Common mistakes in VAT on Land, Property and Transfer of a Going Concern

Treating all property sales as standard-rated.
Students remember that commercial property can be taxed and forget the default is exempt.
Fix: Start with exempt as the default. Only move to standard-rated if the option to tax has been made, or for supplies that are specifically standard-rated.
Ignoring the customer when advising on the option to tax.
Students focus on the owner's input VAT recovery only.
Fix: Always ask whether the tenant or buyer can recover VAT. If not, opting may make the property harder to let or sell.
Saying a TOGC applies without checking every condition.
The words 'sale of a business' trigger the answer automatically.
Fix: Test each condition against the facts and say which are met. A buyer that is not registered, or a break in trading, can defeat TOGC treatment.
Forgetting the buyer's own option to tax on an opted property in a TOGC.
Students treat the TOGC and the land rules as separate topics.
Fix: If the seller has opted, say the buyer's option must be in place and notified to HMRC, and written notification given to the seller, by the relevant date (the date of transfer or, if earlier, the tax point). Otherwise the property element is not treated as part of the TOGC.
Charging VAT on a TOGC and calling it correct for safety.
Students worry about losing marks if they do not charge VAT.
Fix: If the conditions are met, the transfer is outside the scope and no VAT is charged. Charging VAT wrongly creates a cash flow cost and a correction.
Using the wrong VAT rate or thresholds.
Students rely on memory instead of the tax tables.
Fix: Use the 20% standard rate, the £90,000 registration limit and the £88,000 deregistration limit from the tables given in the exam.

Worked examples

Example 1

Opal Ltd owns a commercial office building and has not opted to tax it. It sells the building to Tern Ltd, a VAT-registered trader, for £800,000. Opal wants to know if VAT arises and what happens if it opts to tax first. Assume the building was completed more than 3 years ago.

Show the solution

The building is commercial land and is over 3 years old. With no option to tax, a sale is exempt. No VAT is charged on the £800,000.
Opal cannot recover input VAT related to an exempt sale, subject to partial exemption rules.
If Opal opts to tax before the sale, the sale becomes standard-rated. VAT = £800,000 × 20% = £160,000.
Total price payable by Tern = £800,000 + £160,000 = £960,000.
Tern is VAT-registered and makes taxable supplies. It can usually recover the £160,000 as input VAT, so the real cost is £800,000, with a short-term cash flow effect.
If Tern was exempt or partly exempt, it could not fully recover the VAT, and opting would raise its real cost.

Answer: Without the option, the sale is exempt with no VAT. If Opal opts, VAT of £160,000 is charged, total £960,000. Tern, if fully taxable, can recover the VAT. Opting helps Opal recover its input VAT but only suits a buyer who can recover VAT.

Example 2

Cedar Ltd sells its delivery business, including a leased depot and all trading assets, to Maple Ltd for £500,000. Maple is already VAT-registered and will run the same business without any break. Explain the VAT treatment and state what you would check.

Show the solution

A business is being sold as a going concern, with assets, so a TOGC may apply.
Test the conditions. A business is transferred: yes. Maple carries on the same kind of business: yes. Maple is VAT-registered: yes. No break in trading: yes.
All the conditions are met, so the transfer is outside the scope of VAT. No VAT is charged on the £500,000.
Without TOGC treatment, VAT at 20% would apply to the standard-rated assets. If the whole £500,000 were standard-rated, the VAT would be £500,000 × 20% = £100,000. This is an illustrative maximum only. The leasehold depot would normally be exempt unless opted, so the real figure would be lower. It still shows the cash flow saving.
Check the depot. If Cedar Ltd has opted to tax the depot, Maple's option to tax must be in place and notified to HMRC by the relevant date (the date of transfer or, if earlier, the tax point). Maple must also give Cedar written notification of its option. If this is not done, the depot is not treated as part of the TOGC, and the normal land rules apply to it.
Check each condition before treating the sale as a TOGC. If Maple fails a condition, VAT could be due on the standard-rated assets and Cedar Ltd would be liable to account for it.

Answer: The sale is a TOGC and is outside the scope of VAT, so no VAT is charged on the £500,000. Maple must handle any opted property correctly. If the conditions failed, VAT at 20% could apply to the standard-rated assets. £100,000 is the illustrative maximum if the whole price were standard-rated, but the leasehold depot would be exempt unless opted.

Exam tips

Write the default first: land is exempt unless opted. It earns an easy mark and frames the rest of your answer.
In TOGC questions, list each condition and say met or not met. Marks go to application, not just recall.
If numbers are given, show the VAT calculation at 20% and the total payable. Show workings to the nearest £.
Always mention who bears the cost. Ask if the buyer or tenant can recover VAT, and use that for your advice.
Finish with a clear recommendation. Professional skills marks reward a decision linked to the client's goals.

Practice questions from Value added tax

VAT on Land, Property and Transfer of a Going Concern: frequently asked questions

What is the option to tax on land and buildings?

It is a choice by the owner to charge VAT on sales and lettings of a commercial building or land that would otherwise be exempt. It lets the owner recover related input VAT. It applies to all of the land and buildings within the opted parcel and can be revoked only in limited circumstances, such as within a 6-month cooling-off period or after 20 years.

What conditions must be met for a transfer of a going concern?

A business, or a part that can operate separately, must be transferred as a going concern. The buyer must carry on the same kind of business and be VAT-registered or become so. There must be no break in trading. If these are met, the transfer is outside the scope of VAT.

How does the option to tax affect partial exemption?

Opting makes supplies of the property standard-rated, which counts as taxable income. That generally helps recover input VAT on property costs. Without the option, exempt income can reduce recovery under the partial exemption rules.

What happens if a TOGC is wrongly applied?

If a condition was not met, VAT should have been charged on the standard-rated assets. The seller may be liable to account for it, and the buyer's recovery may be delayed. This is why you must check every condition.