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Care Home Sale and Lease Back….Supreme Court Rules Against HMRC

The Supreme Court has ruled against HMRC in a case concerning the sale and lease back of a care home, thus potentially opening the door for many care home operators to raise finance for new buildings without incurring a large VAT liability. Lynne Gill, Senior Indirect Tax Manager at Healthcare specialist Vat Solutions, summarises the ruling below…

A care home acquired by Balhousie (a commercial care home operator) was ‘zero rated’, when acquired, as it was a new relevant residential building being operated as a care home. The change of use or disposal of such a building within 10 years triggers a self-supply adjustment known as ‘clawback’ which results in VAT having to be paid to HMRC.
Balhousie sold its care home to raise finance on the basis that it would receive a 30 year operating lease on the property. HMRC’s view was that this was the disposal of Balhousie’s entire interest in the building and subject to VAT as a ’deemed supply’. Balhousie appealed against this to the First Tier Tribunal who agreed with Balhousie that the sale and leaseback was not an entire disposal (as the sale was conditional on Balhousie leasing back the building and continuing to operate as a care home).

Subsequently, the Upper Tribunal and Court of Session chose to see the sale and leaseback as two separate transactions and ruled that the sale did amount to the entire disposal of the building. However, the Supreme Court agreed with the First Tier Tribunal that the sale and leaseback was a single event and at no point did Balhousie entirely dispose of their interest in the building. The Supreme Court went as far as to describe HMRC’s arguments as ’close to fanciful’.

The Supreme Court’s decision is the ultimate, non-appealable decision and confirms that the sale and leaseback of a care home does not trigger a charge to VAT under the ‘clawback’ provisions.

What does this mean, going forward, for care operators who have used leaseback arrangements? In short, the ruling means that care operators who have used such arrangements should now review their position and ensure that they are falling within the scope of the Balhouisie case in terms of any leasing interests …. and thus ensure that they will not be subject to HMRC assessing for VAT on a self-supply charge.

For further details, or if you would like to discuss your particular care provision’s position regarding the above, please contact Clare Newboult at VAT Solutions (
tel: 0114 280 3630

© Kingscrest Services Ltd (t/a VAT Solutions) 2014

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