On 6 October, HMRC issued Revenue & Customs Brief 13 (2021) to confirm that a self-supply charge will not arise when buildings in the care and student sectors are disposed of under a sale and leaseback transaction following the Supreme Court decision of 31 March 2021 in the case of Balhousie Holdings Limited 2021 UKSC 11 (Balhousie).
A self-supply charge applies where a property has been purchased or constructed at the zero rate of VAT, with a certificate stating that it will be used for a relevant residential or charitable purpose, and within a 10-year period, following certification there is a change in use or the disposal of the ‘entire interest’.
This Brief confirms that following Balhousie, a sale and leaseback of a certified property will not constitute the disposal of an entire interest for the purposes of the self-supply charge when all the following conditions are in place:
- A qualifying property must have been purchased.
- When the property is sold, there must be an immediate lease in place, which is a seamless transaction with no time lapse.
- The lease must be for the remaining term of the 10 years from the original purchase date or longer.
- The property must be continually used or operated for a qualifying purpose, meaning the business suffers no break in trade during the sale and leaseback.
If these conditions are not met, then the sale of the property or the giving up of a long lease within the 10-year period will be subject to the self-supply charge for the remaining term, since the disposal of the entire interest in the property would have taken place within the 10 year period.
Sean McGinness, Head of VAT at Saffery, comments:
“This Brief confirms HMRC’s official view is in line with the Supreme Court’s decision in Balhousie.Care homes and student accommodation providers can refinance through sale and leaseback transactions without incurring a self-supply charge, provided the conditions outlined in HMRC’s Brief are met. Where these conditions are not met in respect of a disposal or there is a change of use of the property within the 10 year certification period, the self-supply charge will still apply. Any change of use or disposal should be carefully considered to ensure that there is no unexpected VAT charge.”
