As a result of a recent policy change, landlords may now be entitled to a VAT refund on transactions undertaken during the last four years.

HMRC have reviewed a number of their policies following a recent tribunal case and amended them to make them more flexible. The good news is the changes are also retrospective.

Historically, landlords have paid VAT on premiums paid to tenants for the surrender of their lease where the tenant has opted to tax their interest in the property. This is on the basis that such premiums were always considered by HMRC to represent a supply of land by the tenant.

In the light of recent tribunal decisions, HMRC have announced a change in policy meaning that there is, in principle, no obstacle to the surrender of a lease being a Transfer of a Going Concern (TOGC), subject to all the other TOGC conditions that would normally apply.

As a result of this policy change, landlords may now be entitled to a repayment of VAT on transactions that have been made within the last four years.

One of the other changes surrounds HMRC Policy recognising TOGCs on new developments of dwellings.

The first grant of the freehold, or a long lease, in such properties by the “person constructing” is generally zero-rated. This is straightforward where the party constructing the property sells directly.

However, where the project is transferred this can create issues.

HMRC have traditionally taken the view that where a completed building is transferred as a TOGC, the buyer cannot obtain “person constructing” status and therefore cannot make the onward zero-rated sales.

HMRC have changed their policy to now accept that the “person constructing” status can be transferred, subject to various conditions.

The policy also applies to the transfer of “person converting” status for the conversions of buildings from non-residential to residential and “person substantially reconstructing” status for substantially reconstructed listed buildings. Again, business can apply these changes retrospectively for a 4 year period.

As always, VAT advice should be sought in advance of property transactions as there are many provisions in addition to the above that need to be considered.