VAT on selling business lease

[kelf]

I am running a small restaurant business. The business is VAT registered. I have had an offer from another restaurant to buy me out of the lease on one of our premises. Does the sale of a business lease attract VAT?

Many thanks for any input in advance.

 

[WaveJumper]

Pretty sure you don't have to charge VAT, but also in the back of my mind there maybe circumstances where you may wish too, I am no accountant, but sure they will be along soon but I would sit down and have the discussion with your own who will obviously have a full overview of your financials

 

[Clinton]

There are two ways to sell a business - an asset sale and a share sale. Yours isn't a share sale.

If there is a limited company and the limited company is selling the assets of the business, VAT is payable.

You're selling just the lease. That would be an asset sale, right?

Except that a lease is usually a liability, not an asset. So there's a potential capital gain issue for the business in this case?

Go pay a lawyer to advise on the sale situation and get professional advice!

Most business owners underestimate the complexities involved in selling a business (or arrogantly over-estimate their own competence). Don't be one of them.

And please, please, please don't come back to say that you always intended getting a lawyer, but just wanted to get some forum advice first. We hear that a lot!

 

[kelf]

HI Clinton,

Thanks for your input. We are not selling the business. The person simply wants to buy the lease - not the business. So I will be left with everything else (shares, all other assets etc) after he buys the lease.

 

[Bobbo]

Is the buyer, by buying this lease off you, taking over an operating restaurant at that premises? Or is the premises empty?

 

[kelf]

Basically, we are running a restaurant from there now. He wants to buy the lease so that he may run something from there and he wants the premises completely empty. No equipment, no tables, chairs etc. He does not want the company, shares, equipment. Just the lease.

 

[KeithGreen]

Are you selling the lease? Or selling the business (as a going concern)by way of a transfer of the lease? As Clinton says you should get legal advice, but take a look at HMRC's guidelines here https://www.gov.uk/hmrc-internal-manuals/vat-transfer-of-a-going-concern

 

[David Griffiths]

The OP has made it clear that this is not the transfer of a going concern, merely the sale of a lease.

That would normally be an exempt supply for VAT purposes, unless there is an option to tax in place. VAT Notice 724 deals with the supply of land, but it's a complicated subject and if the amount at stake is substantial then proper VAT advice is essential from someone in full possession of the facts relating to this particular case. Normally that would be a VAT specialist, not a high street solicitor.

 

[KeithGreen]

Yep. My mistake, I missed his later post. Plenty of VAT specialists pop up on a Google search. But from my simple point of view, if both businesses are VAT registered, then surely the seller should charge VAT, and the buyer reclaim it.

 

[David Griffiths]

Yep. My mistake, I missed his later post. Plenty of VAT specialists pop up on a Google search. But from my simple point of view, if both businesses are VAT registered, then surely the seller should charge VAT, and the buyer reclaim it.

The status of the buyer does not determine whether or not the seller charges VAT. If VAT is chargeable that would be the case whether the buyer is registered or not.

If the supply is exempt, then VAT is not chargeable. If it is incorrectly charged then the purchaser would not be allowed to claim the sum as input tax. It is in the interest of both parties to get the correct VAT treatment

 

[KeithGreen]

I said I was simple. I didn't say I was right.

 

[Clinton]

The OP has made it clear that this is not the transfer of a going concern, merely the sale of a lease.

Or the sale of a going concern masquerading as 'sale of a lease' (from HMRC's viewpoint) and is being so constructed to bypass TUPE or for some other ulterior motive.

So back to your excellent advice: this is best taken to a competent professional (not the local high street divorce lawyer). If using a solicitor, and they are experts in M&A, they'll advise on the lease but will no doubt be able to advise on the VAT matter as well (albeit unofficially).

 

[WaveJumper]

Just to throw another possible spanner in the works, who is the actual landlord / owner of said building is it you or someone else

 

[kelf]

Landlord is somebody else.

However, as per the advice, have gone to a VAT specialist.

 

[WaveJumper]

Has the landlord given permission for you to sell / assign lease

 

[kelf]

yes

 

[Sami Majoka]

Whether VAT applies to the sale of your lease depends on the circumstances:

1. If the sale is part of a going concern (e.g., transferring the business and assets), VAT may not apply if both parties are VAT-registered and the buyer continues the same business.
2. If it’s just the lease being sold, VAT is likely due at 20%.
3. Check if the property owner has opted to tax, as this would also make VAT applicable.

Good luck!