Sale and leaseback

Definition of entire interest for VAT purposes

Balhousie ran care homes. It was in a VAT group with Balhousie Care and three subsidiaries. In 2010 it decided to build three new homes of which Huntly was one. It belonged to FC a subsidiary of Balhousie which was not part of the VAT group. Balhousie Care acquired Huntly. The sale was zero rated. Balhousie entered into a sale and leaseback transaction with Target because of difficulties obtaining finance. Under the arrangement Huntly was given to Target which then granted a lease of the home to Balhousie Care.

The issue was whether the sale had constituted the disposal of an ‘entire interest’ (VATA 1994 Sch 10 para 36(2)). Balhousie said Balhousie Care had not disposed of its ‘entire interest’ in the property because the arrangements with Target were a sale and leaseback. HMRC disagreed.

The First-tier...