VAT recovery on the sale of shares – new UT decision

11 August 2023| CATEGORIES: input tax recovery, sale of shares, VAT case| TAGS: , , ,

The Upper Tribunal (UT) has released its judgment in the Hotel La Tour Limited case. The case concerned the recovery of VAT on advisers’ costs relating to the sale of shares in a subsidiary company.

The UT rejected HMRC’s appeal against the previous decision of the First-tier Tribunal (FTT) which had found that the VAT on the advisers’ costs could be recovered as there was a link to future taxable supplies.


To fund the development of a new hotel in Milton Keynes, Hotel La Tour Ltd (HLT) decided to sell its existing hotel in Birmingham, by way of the sale of shares in a subsidiary which owned the hotel. HLT provided management services to the subsidiary, including the provision of key personnel that operated the hotel.

The proceeds of the share sale, together with some external loans, enabled it to construct and then operate a new hotel. HLT sought recovery of the VAT incurred on the marketing and legal costs associated with the sale on the basis that the relevant services were directly and immediately linked to its downstream taxable activities, namely developing and operating the new hotel in Milton Keynes.

HMRC denied input tax recovery on the basis that the costs directly related to the exempt sale of shares. HLT appealed to the FTT which found in favour of the business in December 2021. HMRC then appealed the FTT decision to the UT which re-considered the position.

In the UT, HMRC relied on BLP Group Plc (C-4/94), in which transaction costs had been attributed to an exempt share sale, rather than the subsequent application of the sale proceeds to BLP’s wider taxable activities

The judgement

The UT, however, considered that Court of Justice of the European Union (CJEU) jurisprudence had evolved considerably since BLP, in particular in AB SKF (Case C-29/08), where the CJEU indicated that input tax could potentially be recoverable on share sales by reference to the ultimate economic purpose of a transaction.

The UT found that the FTT had not erred in law by applying AB SKF and Frank A Smart & Son Ltd (2019 UKSC 39) and allowing HLT to recover the VAT incurred on the advisers’ fees.

The UT considered that as the advisers’ costs could not be seen as a cost component of the sale of the shares, the costs then had to be linked to the downstream operations of the new hotel by HLT.

The UT found that the application of the principles raised in those cases to the facts of this appeal were “unimpeachable” and HMRC’s appeal was dismissed.


This judgment provides helpful additional guidance on when VAT can be recovered on costs relating to a sale of shares. Previously, the costs were always considered to have a direct and immediate link to the sale of shares which would not allow any VAT recovery when the shares were sold to a UK buyer (or pre-Brexit to an EU buyer).

However, the UT has confirmed that where a business selling shares uses the proceeds of the sale to make taxable supplies in its own right going forward, it may be entitled to recover the VAT on costs.

It is not yet known whether HMRC will appeal the decision further. Businesses that have been refused VAT recovery on costs in similar circumstances should consider making protective claims.

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