How to Organise a TOGC in Your SIPP or SSAS Pension

What Is a TOGC and Why Does It Matter for Pension Property Transfers?

Properties transferring between pension funds or transferring from one pension provider to another are a common occurrence. Despite their frequency, confusion about VAT can often make something which should be routine into a tense situation.  At extreme, transactions can fail entirely and simple administrative errors can lead to substantial penalties from HMRC.

Most often, the ceding scheme and receiving scheme will want the transaction to be a Transfer of Going Concern (TOGC) for VAT purposes so that VAT does not have to be paid to HMRC on one side of the transaction then recovered on the other. So how should the pension administrators make sure this happens?

TOGC Conditions for the Ceding Scheme (Seller)

The ceding scheme needs to fulfil the TOGC conditions that apply to a Seller.

1. They need to be VAT Registered
2. They need to have notified HMRC of Option to Tax on the land being transferred
3. They need to be operating a Property Business in respect of that land

VAT Registration and Option to Tax (OTT) Evidence

The first condition can be evidenced by printing a copy of the pension fund’s VAT Registration Certificate.

The second condition can often be evidenced by producing a letter from HMRC confirming that Option to Tax (OTT) has been notified on the land being transferred.  HMRC stopped issuing these letters after January 2023, but, for many properties being sold there will still be a letter that can be used.

If this letter is not available then OTT will need to be evidenced in the same format as the buyer – read on! 

Do You Need a Lease in Place? (Clearing Up the Myth)

The third condition is the one that can cause confusion. There is a bit of a myth going round that there must be a lease in place on the property being transferred. This is not true.

Now, it is easy to see why people go on about leases. If there is a sitting tenant in the property at the date of transfer, and there’s a current lease in place governing their tenancy, then 99% of the time it means the ‘property business’ TOGC condition has been met.  

But there are many different types of legal agreement that can govern an occupational tenancy. The tenant could be holding over on an expired lease (tacit relocation in Scotland), or they might have a licence to occupy, or an implied tenancy at will. There are all sorts of legal and commercial issues with some of these types of agreements – but from a tax perspective they don’t automatically negate a TOGC.

If there’s any doubt, then engaging a tax adviser to supplement the solicitor’s legal advice can help cut through confusion and keep a transaction moving.

TOGC Conditions for the Receiving Scheme (Buyer)

The receiving scheme needs to fulfil the TOGC conditions that apply to a Buyer.

1. They need to be VAT Registered
2. They need to have notified HMRC of Option to Tax on the land being transferred before the date of the transfer
3. They need to keep their Option to Tax in place for at least six months following the date of the transfer
4. They need to continue to operate the existing Property Business following the date of the transfer

VAT Registration and Option to Tax Evidence

Again, the first condition can be evidenced simply by printing a copy of the pension fund’s VAT Registration Certificate.

The second condition requires a little more care. If the receiving scheme is new to VAT and being registered for the first time then notifying the Option to Tax to HMRC will form part of the VAT Registration Application. The necessary documents will be attached to the application within the HMRC online account, evidencing that OTT has been notified. This also entails retaining copies of the PDF documents that are submitted, and taking screenshots of the HMRC portal to evidence that the documents were attached.

If the receiving scheme already has an established VAT Registration then OTT is notified to HMRC by completing form VAT1614A, and emailing a scanned copy of the signed form to HMRC’s OTT National Unit. When this email is sent, an automatic email receipt is issued and this – together with a copy of the sent email is the buyer’s evidence that OTT has been notified to HMRC.

Meeting the Six-Month OTT and Ongoing Property Business Requirements

The third and fourth buyer conditions do have a practical difficulty insofar as they rely on the buyer taking (and not taking) certain actions in the future.  And the future can’t be predicted with certainty.

In practice, this is dealt with via the legal contract that documents the transfer.  

Having a contract in place cannot guarantee that the buyer will do what they’ve agreed – but at least it demonstrates intent and ensures that if something does break down following the transfer then the buyer has some legal protection.

This Article Covers VAT Only — Other Requirements Still Apply

Clearly this note only considers the VAT requirements that apply when trying to engineer a property as TOGC between two pension funds. They need to be met in conjunction with any commercial requirements made by the ceding and receiving pension providers, and any legal requirements identified by their respective solicitors.

Practical Tips for Pension Administrators, Solicitors, and Financial Advisers

Tips for Pension Administrators

1. If you don’t deal with VAT internally make sure that any accountant engaged by the fund knows their way round VAT on SIPP and SSAS. If they’re doing this for the first time they might welcome referral to a specialist.
2. Neither the IFA or the Solicitor is necessarily a tax adviser. In fact their engagement letters may specifically exclude tax advice, and VAT advice in particular. If the transaction is complicated, it is unwise to rely on their commentary and consideration of referral to a VAT specialist should be documented to protect your position.

Tips for Solicitors

1. Find out if the receiving scheme has an established VAT Registration or not, and then make sure you ask for OTT evidence in the relevant format. Asking for the OTT National Unit’s receipt when the notification was attached to an application to register for VAT causes confusion.
2. Ask for the VAT Registration Certificate every time. It is surprisingly easy for a client to DIY their VAT and only do part of the process. Insisting on seeing the VAT Registration Certificate can save a lot of work post completion. 

Tips for Financial Advisers

1. Just because the ceding scheme has opted for a property doesn’t mean anyone else has. An OTT is specific to a person/VAT Registration so the receiving scheme will have to take action independently to cover off VAT and ensure TOGC.
2. It can easily take HMRC 40 working days to approve a new VAT Registration for a pension fund. Pensions are not a common legal structure and therefore the application forms aren’t always completed correctly and this adds to timescales.

Disclaimer: This article is for general informational purposes only and does not constitute financial, tax, or legal advice. VAT and TOGC rules are complex and depend on the specific facts of each transaction. You should seek independent professional advice tailored to your circumstances before taking any action.