Supreme Court decision increases VAT recovery risk on share sale costs

In December 2025, the UK Supreme Court delivered its final judgment in the long‑running dispute involving Hotel La Tour Ltd (Hotel La Tour), confirming that businesses face a significantly increased risk of losing VAT recovery on transaction costs where they’re directly linked to an exempt share disposal. 

The ruling removes any remaining ambiguity: fundraising or wider commercial intentions don’t convert an exempt transaction into a taxable one, even where the proceeds undeniably support future taxable operations.

Here, Andrew Horsfield from our corporate defence and compliance team explains what the decision means in practice and how businesses can manage the resulting VAT risk.

Background & why the decision matters

Hotel La Tour incurred more than £76,000 worth of input VAT on legal, financial and commercial costs during the 2017 sale of shares in a Birmingham hotel subsidiary. The sale was undertaken specifically to secure funding for the development of a new hotel business, which would have generated taxable income for VAT purposes. 

Earlier decisions in the litigation process had accepted that the input VAT on those costs supported the broader taxable business and should therefore be recoverable. The Court of Appeal disagreed and the Supreme Court has now endorsed that position. 

For any businesses thinking about share disposals, this outcome underscores a critical risk: the VAT analysis starts and ends with the nature of the supply giving rise to the cost, not with the economic or commercial purpose behind that transaction. 

Key VAT implications 

The impact of the Supreme Court decision on transactions (and specifically input VAT) means that careful consideration of the VAT position is critical.

Some key points from the judgment include that:

1. Exempt transactions remain exempt, regardless of strategic intent or wider commercial objectives.
2. Direct attribution is decisive.
3. Business purpose doesn’t override legal character.

What businesses need to

1. Distinguish between transaction‑specific costs and general advisory costs.
2. Strengthen documentation and scoping.
3. Review transaction structures early from a VAT perspective.
4. Engage specialist tax advisers at the outset.

Wider implications for private equity firms & corporate groups

This decision is likely to affect holding companies, private equity firms and corporate groups undertaking restructures where VAT recovery on professional fees is often a material cost component. There could be additional VAT costs to factor in, which could be significant on larger transactions. 

Looking ahead

For UK businesses, this judgment arguably provides welcome clarity on a long-standing matter but significantly reduces the potential for input VAT recovery on share sale transactions. The central message is clear: VAT recovery follows the nature of the underlying transaction, not the commercial rationale for undertaking that transaction.

While VAT recovery may still be achieved on certain elements of corporate activity with the right planning and documentation, in the post–Hotel La Tour environment, precision and proactive risk management have never been more important and HMRC scrutiny is only likely to increase.

Talk to us

Our corporate defence and compliance team works closely with tax advisers, boards and in‑house teams to help businesses to identify VAT risk early, structure transactions appropriately and withstand HMRC scrutiny.

If you’re planning a share disposal, group restructure or other significant transaction, early engagement can make a material difference. Taking advice at the outset helps to reduce VAT exposure and avoid costly disputes later.

Book a chat with our team today by emailing hello@brabners.com, calling 0333 004 4488 or completing our contact form below.