Helpsheets ... continued 48 from homepage

A look at the VAT position on the purchase of commercial property.

To recover the VAT on costs associated with their commercial properties, the owners of most commercial property rental businesses have opted to tax their portfolios of property and would therefore normally charge VAT on the sale of a commercial property.

Transfer of a going concern provisions - However, the transfer of a business as a going concern (TOGC) is treated as ‘neither a supply of goods nor a supply of services’ for VAT purposes and if the sale meets certain conditions, the supply is outside the scope of VAT and therefore no VAT is chargeable. The TOGC provisions can apply to the sale of an opted commercial building, provided certain conditions are fulfilled.

The basic conditions for a TOGC are:

 • an entire business or a part of the business capable of separate operation is transferred as a going concern;

 • the purchaser uses the assets in the same kind of business; and

 • the purchaser registers for VAT if not already registered or is registerable as a result of the transfer.

Conditions for a property business - Additional conditions are required to qualify as a TOGC for a property rental business:

 • The property should be tenanted.

 • The purchaser is registered for VAT and notifies HMRC of its option to tax (using form VAT 1614A) on or before the date of the transfer.

 • The purchaser notifies the vendor that the purchaser’s option will not be disapplied under the anti-avoidance provisions in Special Provisions Order (SI 1995/1268), art 5(2A).

What counts as tenanted? - Here are some examples from HMRC of when the sale of a property can be treated as a TOGC. If a business:

 • owns the freehold of a property which it lets to a tenant and sells the freehold with the benefit of the existing lease. This is a TOGC, even if the property is only partly tenanted. Similarly, if the business owns the lease of a property and it assigns the lease with the benefit of the sub-lease, this is a TOGC;

 • sells a building during an initial rent-free period;

 • granted a lease but the tenants are not yet in occupation;

 • owns a property and has found a tenant but not actually entered into a lease agreement when it transfers the property to a third party (with the benefit of the prospective tenancy but before a lease has been signed); or

 • is a property developer selling a site as a package (to a single buyer) which is a mixture of let and unlet, finished or unfinished properties, the whole site can be regarded as a TOGC.

Examples of where there is not a TOGC are where a business:

 • is a property developer and has built a building and it allows someone to occupy temporarily (without any right to occupy after any proposed sale) or it is ‘actively marketing’ it in search of a tenant;

 • sells a property where the lease that has been granted is surrendered immediately before the sale – even if tenants under a sublease remain in occupation; or

 • sells a property to the existing tenant who leases the whole premises.

This can be a very useful concession, as not only is there a cashflow saving on financing the VAT costs until the input tax on the property can be reclaimed, but there is an absolute saving on stamp duty land tax (SDLT, in England and Northern Ireland) as SDLT is charged on top of the VAT, so if the VAT is avoided there is less SDLT to pay.

Practical tip - If a business is buying an opted commercial property, it can avoid paying VAT if it can obtain TOGC status for it by registering for VAT, opting to tax and having a tenant in place at the time of the transfer.

The tax implications for a business if invoices are not paid.

Bad debts pose a significant challenge for every business. Swoop Funding’s 2025 UK business debt report (April 2025) revealed that the average debt per company stands at £365,375 – funds that could otherwise maintain healthy cashflow and financial stability for the business. Therefore, staying on top of nonpayments is essential.

However, every business will eventually encounter debts that cannot be collected. Writing off bad debts comes with specific tax implications that vary based on whether the debts are trading or non-trading, and whether the business operates as a company, sole trader, or partnership.

When can a claim be made?

Bad debt deductions are relevant only for businesses using the accruals method of accounting, as income from credit sales is recognised when the sale occurs (or invoice issued), not when payment is received. Companies and self-employed businesses with a turnover exceeding £150,000 a year are obliged to prepare their accounts using the ‘accruals’ basis. Therefore, if a debt becomes uncollectible, a deduction is needed to adjust for the invoice that was previously included in the accounts.

HMRC allows for the write-off of bad debts; but, as ever, conditions apply. Relief can be claimed on debts that are irrecoverable or considered to be so. This covers situations where the debtor cannot be traced, has been declared bankrupt or the company has been liquidated (HMRC will accept court documents as evidence of non-recovery, unless the liquidator indicates that some payments will be made). Relief is also possible in cases where the creditor believes that payment is unlikely.

Make an effort

Once potential bad debts are identified, HMRC expects the creditor to have made reasonable and proportionate efforts to recover the amounts owed, including records supporting the decision.

For relatively small debts, a few automated reminder letters may suffice. If no payment is received, the creditor can apply bad debt relief by deducting from profit – HMRC will likely accept a claim. Debts of more significant amounts (e.g., £10,000 or more) will require the claimant to take additional steps, such as employing a debt collector. Be aware that many debt collectors will not take on debts of less than £600.

Bad debt relief is granted in the period when the business determines that a debt is irrecoverable, preferably in the same period the invoice was issued. This way, tax will not be payable on unpaid invoices. If the debt is not identified until the following period, it may take a full year before relief is granted.

VAT implications

If the supplier is VAT-registered, bad debt relief (BDR) can be claimed if the goods have been supplied or services provided but payment has not been made.

To claim BDR, the following conditions must be met for each individual invoice:

 • The VAT on the supply must have already been accounted for and paid to HMRC.

 • The debt must be written off in the supplier’s regular VAT accounts and transferred to a separate bad debt account.

 • The value of the supply must not exceed the usual selling price.

 • The debt should not have been paid, sold, or factored through a valid legal assignment.

 • The debt must remain unpaid for at least six months after the later of the payment due date or the supply date. If an invoice does not specify a payment date, the invoice date is used.

What happens if the debt is paid? If the debt is eventually paid after relief has been claimed, the payment will be classified as income for the year it is received.

If VAT was previously reclaimed, the supplier business will need to repay this VAT.

Practical tip

HMRC rarely accepts ‘general provisions’ for debts. Therefore, it is essential to maintain records of which debts have been reviewed, when they were reviewed, why the debt is believed to be uncollectible, and what actions have been taken to recover. A written debt chase and recovery policy is essential

Grandparents might consider using tax reliefs to help future generations.

A little under a year ago, Rachel Reeves, the Chancellor of the Exchequer, announced plans to remove the inheritance tax (IHT) relief on unused pension funds when a taxpayer died after the age of 75. Reeves said that the aim was to “restore the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance, as was the case prior to the 2015 pension reforms”.

On 21 July 2025, the government published the draft legislation to put this into effect and, subject to parliamentary approval, IHT will become chargeable on these funds from 6 April 2026.

Once upon a time…

Historically, pension funds – contributions to which attracted income tax relief along with valuable tax relief on the funds themselves – were to provide an income in retirement. Granting IHT relief on the funds meant that – for those who could afford it – there were tax advantages to using other savings and assets to fund retirement and then passing the pension funds to the next generation. Since 2015, some savers may have added extra contributions to their pension funds with a view to passing on wealth in this way.

That option – which may have been attractive to those thinking of skipping a generation and bequeathing the pension fund to, say, their grandchildren – will now disappear. This, combined with the forthcoming reductions in IHT relief for agricultural and business property, may have prompted individuals to consider other taxefficient options for their descendants.

Individual savings accounts

Although a junior Individual Savings Account (ISA) can only be opened by a parent or guardian, anyone can contribute to it up to the maximum annual limit of £9,000. NFU Mutual has reported a 115% rise in new junior ISAs opened in the first quarter of 2025 compared to the same period in 2024. Additional contributions to existing junior ISAs have nearly doubled and the amounts being invested have also increased.

As with standard ISAs, junior ISAs can hold either cash or stocks and shares. The money or assets in the junior ISA cannot be accessed until the beneficiary reaches the age of 18, but this may add to its attraction as a useful means of accumulating wealth for the next generation. As always, the donor must survive for seven years after the gift for this not to be taken into account in calculating IHT.

Stick with pensions? Rather than a grandparent seeking to bequeath their own pension, remember that a pension plan can be opened for a child as soon as they are born. Unless they have earned income, the net annual contributions will be limited to £2,880. This can be paid into the pension and is treated as net of 20% income tax, so the government will add a further £720, so £3,600 is in the pension fund.

The restrictions on withdrawal are strict, and generally the beneficiary will not be able to access the pension funds until they reach the normal minimum pension age (55 now, but increasing to 57 from 2028) but this may be seen as an advantage, providing means for a long-term investment and a secure retirement. Financial advice should be taken because the existence of a pension plan could potentially have tax implications on future pension savings in adulthood.

Tax-free gifts

The above payments to a junior ISA or pension may be treated as potentially exempt transfers for IHT purposes. However, those making gifts should remember the annual exemption of £3,000 and small gift exemption of £250. There are also exemptions for weddings.

If regular annual payments are being made, the ‘normal gifts out of income’ exemption may be relevant, although this is subject to conditions.

Practical tip

Advantageous tax treatment is only one aspect of saving and investment. The information above should be reinforced by professional financial advice to ensure that the transfers of money match the requirements of the donee as well as the donor.