VAT on commercial property

When a TOGC Fails, and What It Costs

PropertyVAT Team · Updated 21 October 2026 · 3 min read

A TOGC that works is the best outcome available on a VAT-affected purchase. A TOGC that fails is one of the worst, because it fails late and it fails into a fixed completion date.

What actually changes

The moment TOGC treatment is off the table, three things move at once:

The VAT comes back. The stamp duty does not. And the funding gap arrives at the point in the transaction where there is least time to solve it.

How TOGCs fail

The buyer's option to tax was not notified in time. The most common cause by a distance. The seller's option does not transfer to the buyer, and a buyer who assumed it did has no option of their own. Options are not normally backdated, so this cannot be repaired retrospectively.

The buyer's intentions changed. A buyer who decides to occupy rather than let has ended the letting business rather than continued it.

The tenants left. A property that was let at exchange but vacant at completion may no longer have a business to transfer.

It was a sale to the sitting tenant. The letting business can end on completion rather than continue.

The facts were never right. Sometimes the deal was described as a TOGC early on by people being optimistic rather than advised, and nobody tested it until the seller's VAT adviser looked properly.

A break in trading. A gap between the seller ceasing and the buyer starting can undermine the treatment.

Why it surfaces so late

Because the conditions are tested against the position at completion, not at exchange. A deal can satisfy every condition in month one and fail in month three because a tenant served notice.

It is also nobody's single responsibility. The buyer assumes their solicitor is confirming it; the solicitor assumes the accountant is advising on it; the accountant was never formally instructed. The question gets asked properly when the completion statement is being prepared.

Protecting yourself in the contract

This is the practical defence, and it costs nothing at the drafting stage:

1. State that the parties intend TOGC treatment, and the basis for it.
2. Deal explicitly with failure. Who pays the VAT, and against what evidence.
3. Require the seller to issue a valid VAT invoice if VAT becomes payable, so your reclaim is not held up.
4. Address timing. Can completion move if the position changes close to the date?
5. Make the buyer's obligations explicit — opt to tax, notify HMRC, evidence it before completion.
6. Consider a retention or deposit mechanism where the position is genuinely uncertain.

Have the funding arranged anyway

The buyers who get hurt are not the ones whose TOGC failed. They are the ones who treated it as certain.

If a transaction carries any realistic chance of 20% appearing at completion, know in advance where that money comes from. Specialist VAT funding can complete in around 48 hours — but only if the buying entity is already VAT registered.

That is the quiet advantage in this scenario: a buyer who was pursuing a TOGC properly will usually have registered and opted already, because the TOGC required it. The paperwork that was supposed to deliver the TOGC is the same paperwork that makes fast VAT funding possible when it does not.

If it has already failed

1. Confirm the position in writing with your VAT adviser — do not act on an assumption in either direction.
2. Check the contract for who bears the VAT and whether completion can move.
3. Confirm the buying entity's VAT registration is in place.
4. Recalculate SDLT on the VAT-inclusive figure, and tell your solicitor.
5. Arrange funding for the VAT.
6. Make sure you receive a valid VAT invoice at completion, or the reclaim stalls.

This guide is general information, not tax or legal advice. TOGC treatment is fact-specific — take specialist advice as soon as the position is in doubt.