A Transfer of a Business as a Going Concern is the VAT mechanism that takes the sale of a property letting business outside the scope of VAT entirely. For an opted-to-tax commercial property generating rental income, a successful TOGC saves the buyer the 20% VAT cash-flow drag on the purchase price and produces a meaningful reduction in SDLT, because SDLT is calculated on the chargeable consideration including any VAT.
The conditions are exacting and the most common failure point is the buyer's option-to-tax notification. Where the property is opted to tax in the seller's hands, the buyer must opt to tax and notify HMRC before the relevant date (effectively before completion) for the TOGC to apply. Late notification fails the test and produces a retrospective VAT and SDLT bill that can run into seven figures on substantial commercial portfolios.
This page covers the five TOGC conditions, the option-to-tax interaction, the SDLT impact, and the principal failure modes. The wider VAT framework is the topic of the new-build VAT guide, and for the construction-services compliance position see the domestic reverse charge guide.
The Statutory Basis
TOGC sits in Article 5 of the Value Added Tax (Special Provisions) Order 1995. Where the conditions are met, the supply of assets in the course of a TOGC is "treated as neither a supply of goods nor a supply of services". The transfer is outside the scope of VAT entirely; it is not a zero-rated supply (which is a positive taxable supply at 0%) and it is not an exempt supply.
The practical consequences:
- No VAT charged by the seller on the purchase price.
- No input VAT recoverable by the buyer (because there is none).
- Continuity of the VAT-relevant treatment: the buyer steps into the seller's position on capital-goods-scheme adjustments, option-to-tax history, and partial-exemption mechanics.
- SDLT is calculated on the consideration excluding the VAT element that did not arise, reducing the chargeable consideration.
HMRC's published guidance is in VAT Notice 700/9. The notice is the practical reference point for all five conditions.
The Five Conditions
1. Transfer of a Business or Identifiable Part of a Business
The assets must be transferred as part of a business, or part of a business capable of separate operation. The bar is whether what is sold can function as a business in the buyer's hands. A sale of a single let property with sitting tenants meets this if the rental income stream continues; a sale of a single empty property is much harder to characterise as a business.
2. Same Kind of Business
The buyer must use the assets in the same kind of business as the seller. A property letting business sold to a buyer who will continue letting the same properties to the same tenants under the same leases is the clean case. A property letting business sold to a buyer who intends to redevelop and sell on (a property trading business) is a different kind of business and falls outside TOGC.
HMRC's guidance accepts that the buyer's operating model can differ in detail (different management company, different rent-collection arrangements, different marketing approach) as long as the underlying business is recognisably the same kind.
3. VAT Registration Status
Where the seller is VAT-registered, the buyer must be VAT-registered or required to be at the date of transfer. "Required to be" means the buyer's taxable turnover will exceed the registration threshold (currently £90,000) when the transferred business is included. Many TOGC buyers VAT-register specifically to crystallise the requirement before completion.
For non-registered sellers (where the seller's taxable turnover is below the threshold), the registration condition does not apply.
4. No Significant Break in Trading
The business must transfer without a significant break. A short break at completion (typically a day or two for legal completion mechanics) is acceptable. A multi-week period during which the property is held vacant and not let by either party is not a TOGC; it is a sale of empty assets.
5. Option-to-Tax Notification (Opted Properties Only)
Where the property has been opted to tax by the seller, the buyer must opt to tax the same property AND notify HMRC of the option before the relevant date. The relevant date is the date on which any chargeable consideration for the supply is paid or otherwise becomes due, or the date the supply takes place, whichever is earlier. In practice, this means before completion.
The option is notified to HMRC on form VAT1614A. The 30-day notification window for ordinary opt-to-tax cases does not stretch the TOGC timing; the notification must actually predate the relevant date. Parties commonly opt and notify three to six weeks before completion to allow for HMRC processing and to leave room for last-minute completion-date changes.
Worked Example: £5m Commercial Investment Sale
Northgate Investments LLP holds a freehold commercial property (an office building) in Manchester. The property is opted to tax. It is fully let to a single corporate tenant on a 15-year lease at £400,000 annual rent. Northgate is VAT-registered. Northgate sells the property to Crescent Holdings Ltd for £5m exclusive of VAT.
Without TOGC
If the conditions are not met (eg Crescent does not opt to tax in time), Northgate must charge VAT on the sale. £5m × 20% = £1m output VAT. Crescent pays Northgate £6m on completion. Crescent can recover £1m as input VAT against its own taxable supplies, but only on the next quarterly return cycle, producing two to three months of working-capital drag.
SDLT on the £6m chargeable consideration (VAT-inclusive). The 2026/27 non-residential SDLT calculation: 0% on the first £150,000, 2% on £150k to £250k (£2,000), 5% on £250k to £6m (£287,500). Total SDLT: £289,500.
With TOGC
The conditions are met. Crescent has opted to tax the property and notified HMRC three weeks before completion. The tenant continues in occupation on the existing lease; the rental business continues uninterrupted. No VAT is charged on the £5m purchase price. Crescent pays Northgate £5m on completion.
SDLT on the £5m chargeable consideration (no VAT element). The 2026/27 non-residential SDLT calculation: 0% on the first £150,000, 2% on £150k to £250k (£2,000), 5% on £250k to £5m (£237,500). Total SDLT: £239,500.
The Saving
| Component | Without TOGC | With TOGC | Difference |
|---|---|---|---|
| Sale price | £5,000,000 | £5,000,000 | £0 |
| VAT charged | £1,000,000 | £0 | £1,000,000 cash flow |
| SDLT | £289,500 | £239,500 | £50,000 |
| Total upfront cost to buyer | £6,289,500 | £5,239,500 | £1,050,000 |
The £50,000 SDLT saving is permanent. The £1m VAT element is a working-capital benefit (Crescent would have recovered the VAT on its next return) but the cash-flow value of having that £1m in the bank during the recovery cycle is material on a project-finance facility.
The Principal Failure Modes
Late Option-to-Tax Notification
The dominant failure mode. The buyer's solicitor or accountant assumes the standard 30-day notification window applies and submits the VAT1614A after completion. The TOGC fails; VAT becomes chargeable retrospectively. The fix is fact-specific and not always available (HMRC sometimes accepts a notification effective from the date of the decision-to-opt where the decision is documented and clearly predates completion). The clean prevention is to set the opt-to-tax and notification dates in the transaction timetable as a hard deliverable.
Vacant Property at Completion
A property that loses its tenant before completion produces a same-kind-of-business problem. The business being transferred is the letting business; if no letting is happening, the test is hard to satisfy. Where a void is unavoidable (the tenant gives notice late in the conveyancing process), evidence of active marketing and an imminent re-let helps; an extended void with no letting activity produces a real risk of TOGC failure.
Buyer Not VAT-Registered
A buyer that has not VAT-registered by the date of transfer fails the registration condition. New-entity buyers (newly-incorporated SPVs) should apply for VAT registration as soon as the SPV is incorporated and the property acquisition is in prospect, not on or after completion. HMRC processing time on VAT registrations has been variable in recent years; building in slack is essential.
Wrong Kind of Business
A buyer that intends to redevelop or significantly change the use of the property is making a different-kind-of-business case. Where redevelopment is the long-term plan but the property will be let "as-is" for the medium term before any change in use, TOGC can still work; the test is the buyer's activity at and after completion, not a hypothetical future change.
Mixed Sale (Some Properties TOGC, Others Not)
A portfolio sale where some properties qualify for TOGC and others do not (eg some let, some vacant) is sold as a part-TOGC, part-VATable transaction. The consideration and VAT treatment must be apportioned. The apportionment basis is fact-specific and HMRC enquiries on portfolio sales focus on whether the apportionment reflects commercial reality.
Records and Documentation
The contemporaneous records that defend a TOGC claim are:
- The sale contract stating that the parties intend the transaction to qualify as a TOGC.
- The tenancy schedule at completion, showing each let and the continuing tenancy.
- Post-completion evidence of continued letting: rent receipts to the buyer, lease assignment correspondence, notices to tenants confirming the change of landlord identity for rent-payment purposes.
- The buyer's VAT registration certificate, dated before completion.
- For opted-to-tax property: the buyer's VAT1614A form and HMRC's acknowledgement, both dated before completion.
- The SDLT return showing TOGC treatment and the consideration figure used.
HMRC enquiries on TOGC commonly arrive 18 to 24 months after completion, often triggered by inconsistencies between the parties' VAT returns (one party treating the sale as outside the scope, the other treating it as a taxable supply). Contemporaneous documentation is materially more useful than post-hoc explanations.
How TOGC Sits Alongside the Wider Tax Stack
TOGC interacts with several other property tax positions:
- SDLT: lower chargeable consideration where the VAT element is removed, as in the worked example.
- Corporation tax / income tax: continuity treatment for the business. The capital allowances pools transfer at written-down value; trading stock transfers at cost (not market value). For property letting businesses there are typically no inherited trading-stock or capital-allowances issues, but the principle applies.
- Capital Gains Tax: the seller still has a CGT disposal at market value on the sale; TOGC affects only the VAT treatment, not the CGT. For corporate sellers, the disposal is within corporation tax on chargeable gains.
- Option-to-tax binding effect: the buyer's new option binds the buyer going forward, so subsequent supplies of the property are standard-rated. The option can be revoked after 20 years under the cooling-off rules, but during the binding period the buyer is committed.
For the wider corporate-acquisition position on letting businesses inside a Ltd Co, see our guide to corporation tax rates for property companies in 2026/27.
TOGC is one of the few VAT mechanisms in the property sector that produces an unambiguous client benefit when executed correctly and an unambiguous client cost when executed incorrectly. The technical hurdle is low; the discipline is in the timeline management of the option-to-tax notification before completion.