VCONST21500 - Changing the use or disposing of certificated buildings - buildings completed on or after 1 March 2011: other points to note

Demolition

No ‘change in use’ charge is due if a zero-rated qualifying building is demolished to ground level within 10 years of completion.

Sale of property

If the entire interest held in a qualifying building is sold to another person, whether or not that person intends to use the building solely for a qualifying use, a change in use charge is due on the sale.

The law was drafted this way as the only person who can pay a ‘change in use’ charge is the person who received the zero rate supply. Therefore, if a charity had built a qualifying building and then one year later sold that building, they would remain responsible for any ‘change in use’ charge for the next nine years.

By making the ‘change in use’ charge payable on disposal of the entire interest held (normally the freehold), this removes charities from the administrative and financial burden of having to monitor the use of buildings that they otherwise have no legal interest (for land law purposes) in.

Sale and leaseback

Following the case of Balhousie Holdings Limited [2021] UKSC 11, the disposal of an ‘entire interest’ will not occur on a sale and leaseback contract when all the following conditions are in place:

  • The property is sold, with an immediate leaseback in place, which is a seamless transaction with no time lapse.
  • The lease must be for the remaining 10 year term from the original acquisition date or longer.
  • The property must be continually used/operated for a qualifying purpose, meaning the business suffers no break in trade during the sale and leaseback.

In this instance the business has not disposed of their ‘entire interest’ and no self-supply charge will be applicable.

Transfer of a going concern

There are no special rules for the transfer of a going concern (TOGC) involving qualifying buildings. A TOGC can only apply to a transfer of a business and so wouldn’t apply to charitable non-business activities or to use for a non-business relevant residential purpose.