In March 2013, Balhousie Care Ltd acquired a care home at Deveron Way, Huntly, Aberdeenshire on a zero-rated basis for VAT purposes. In order to finance the acquisition and further developments, it entered into a sale-and-leaseback arrangement with Target Healthcare REIT. Pursuant to that arrangement, Balhousie Care conveyed the land to Target and Target immediately granted the land on a long lease back to Balhousie.
HMRC considered this involved the disposal of Balhousie Care’s entire interest in the care home. It sought to impose a VAT self-supply charge on Balhousie Holdings Ltd (an entity which was part of the same VAT group) under paragraph 36(2) of Schedule 10 to the Value Added Tax Act 1994 and issued a penalty notice. Balhousie Holdings successfully appealed to the First-tier Tribunal but HMRC’s approach was upheld by the Upper Tribunal and Inner House of the Court of Session.
Source: supremecourt.uk
