In Balhousie Holdings Limited v HMRC [2021] UKSC 2019/0103, the Supreme Court found that Balhousie was not liable to a VAT self-supply charge arising from the sale and leaseback of a new care home following acquisition from a developer. It had retained its entire interest throughout.

Balhousie operates a chain of residential care homes in Scotland. It acquired a new building, which was zero-rated for VAT by issuing a certificate confirming its intention to use the property for a ‘Relevant residential purpose i.e. a care home.

  • It entered into a sale and leaseback arrangement with a Real Estate Investment Trust (REIT) to raise funds, selling the care home to the trust who simultaneously granted a 30-year lease, back to Balhousie.
  • Balhousie continued to use the property as a care home.

HMRC viewed the sale as the disposal of Balhousie’s 'entire interest', despite the fact that Balhousie never moved out of property nor used the premises otherwise than for an approved purpose.

  • HMRC assessed Balhousie for a self-supply charge of £800,000 plus £24,000 interest.
  • Balhousie appealed, arguing the lease and leaseback did not amount to disposal of the care home.

The First Tier Tribunal (FTT) allowed the appeal on the basis that the reference to a disposal of the 'entire interest' in the building required a taxpayer to relinquish all and every interest in the relevant building. This was not the case for Balhousie.

HMRC appealed to the Upper Tribunal which found that the FTT was incorrect. It agreed with HMRC’s view that the sale and the subsequent leaseback were two separate transactions and that the sale, therefore, constituted a disposal of Balhousie’s entire interest.

Balhousie then appealed to the Court of Session (the Scottish equivalent of the Court of Appeal) but that Court also agreed with HMRC.

The case went to the Supreme Court which rejected the argument that a legalistic approach should be taken. It held that:

  • Whilst the sale and leaseback are separate transactions, the care home operator could not be said to have disposed of its entire interest as it continued to occupy the care home.
  • There was effectively no moment in time during the sale and leaseback transaction when Balhousie had no interest in the property.
  • The appeal was allowed.


The Supreme Court’s decision in Balhousie Holdings indicates that businesses can use the sale and leaseback arrangement entered into for financing purposes saving VAT on self-supply charges as this would be treated as a single transaction for VAT purposes.

Useful guides on this topic

VAT Toolkit
This is our summary version of HMRC's output and input VAT toolkits, our version includes more detail, topics and planning points.

VAT Land & Property: Relevant residential charitable purpose 
What are the VAT rules for land and property that is used for a relevant residential purpose or a relevant charitable purpose? What are the claw back provisions affecting change of ownership or use?

External links

Balhousie Holdings Limited v HMRC UKSC 2019/0103

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