It has generally been the case that, when house builders are selling partly completed dwellings to registered social landlords (RSLs), they try to structure the sale so as to constitute a 'golden brick' type transaction.
Golden brick is a term of art and means that, where the conditions are satisfied, the house builder can sell housing developments to RSLs that have progressed beyond the golden brick stage, at the zero rate of VAT. This means that the house builder is entitled to full recovery of VAT incurred on costs associated with the development and the RSL acquires the development at no VAT cost.
HMRC accept that, at the point the first brick is laid above foundation level (the golden brick), the house builder can zero rate the sale or long-lease in land that will form the site of a building provided a building is clearly under construction.
Following the sale the house builder will usually complete the construction of the properties, and the RSL will either make VAT exempt supplies of the properties (e.g. short term lets) or, possibly, zero rated supplies if it grants long leases on the properties or sells the freehold.
An alternative to the golden brick
It is not always going to be possible to structure a transaction so as to qualify as a golden brick transaction. From the house builder's perspective an alternative, in order to avoid any loss of input VAT, is to structure the transaction as a transfer of a going concern (TOGC). HMRC accept that, where the facts support it, such a transfer can be constituted as a TOGC.
The HMRC Manual which discusses the possibility refers to the case of the Golden Oak Partnership (Golden Oak).
In Golden Oak, the seller was a property development company and the purchaser company intended to continue the development started by the seller. The seller had carried out infrastructure works including the construction of a road and driveways, an electricity substation, a gas meter station, and underground sewerage pumping station and piping from the pumping station to the public sewers which meant that the land was in course of active development. The purchaser continued the construction work without any break. The tribunal held this was a TOGC.
In contrast, in Gulf Trading Management Ltd the seller's only action taken in respect of the land was an inspection of the soil, drawings for planning permission submitted and putting up a fence around the plot. The land was not being actively developed when it was sold.
In order to fall within the Golden Oak criteria, this means that the house builder must be actively developing dwellings on a plot of land, for example, through planning, design, and the carrying out of service and infrastructure works and excavations.
The house builder can then sell the land under development to the RSL after the development has commenced but before the building has progressed beyond foundation stage. It will be necessary for the RSL to take title to the land under development, and complete the development of the dwellings in question.
In the right circumstances structuring such transactions as TOGCs could prove a valuable alternative, if golden brick' treatment is not available.