In Knightsbridge Accountants Ltd v HMRC [2021] TC8026, the First Tier Tribunal (FTT) disallowed input tax claimed on the purchase of a commercial property, there was no evidence to show that the purchaser had legal or beneficial ownership of the property.

'Knightsbridge' provides, among other services, an accountancy and bookkeeping business. It purchased a property for £240,000 plus VAT of £48,000.

  • The building is used for its taxable activities, a purchase invoice was made out to Knightsbridge and an Input tax claim of £48,000 was made.
  • HMRC queried the claim and decided that Kingsbridge was not entitled to claim input tax as the land registry records showed that the property is owned by Knightsbridge Holdings (KBH) and not Knightsbridge.
  • The property is also listed amongst KBH’s assets at Companies House and the mortgage over the property is in KBH’s name.
  • Knightsbridge argued that it has Beneficial ownership of the property, although the property is in KBH’s name.
  • It raised the mortgage but the lending bank insisted on the property being registered with Land Registry in the name of KBH.
  • HMRC’s inspection took place at the property and it is where all of Knightsbridge's taxable activities take place.
  • Unused parts of the property are rented out by Knightsbridge and Knightsbridge receives the weekly rent.

Knightsbridge appealed to the FTT.

The FTT found that:

  • The fact that Knightsbridge is occupying the property for taxable purposes does not take Knightsbridge’s case any further because it could be occupying the premises as a licensee of KBH, rather than as a beneficial owner.
  • There was no evidence of a deed of trust identifying the Knightsbridge as the beneficial owner.

FTT held that Kingsbridge is not therefore entitled to recover input tax on the invoice. The appeal was dismissed.

Comment

This case further highlights the importance of the correct documentation to support an input VAT claim. In the case of a transfer of beneficial ownership, this should be supported by written and properly executed deed.

Useful guides on this topic

Partial exemption & input VAT
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?

Joint property: legal v beneficial ownership
What is the difference between legal and beneficial ownership? What are the tax consequences? Are the rules different for married couples?

Land & Property: Non-residential
This guide considers the VAT treatment of the supply of non-residential property.

External links

Knightsbridge Accountants Ltd v HMRC [2021] TC8026


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