Readers’ forum: Hotel

I act for a client that has a VAT group registration consisting of a property company (owning the freehold of a hotel) and a trading company (running the same hotel).

An option to tax election is in place for the property company on the hotel but this has no effect because the rent charge from the property to the trading company is within the circle of the group; in other words it is VAT exempt. However my client is now selling both the hotel business and the freehold property to a single buyer A Ltd.

My understanding is that A Ltd must pay VAT on the value of the property because it will not be renting it out when acquired because it will be within its own trading company. Thus there is no...