VAT issues for lease assignments and terminations
Produced in partnership with Martin Scammell
VAT issues for lease assignments and terminations

The following Tax practice note produced in partnership with Martin Scammell provides comprehensive and up to date legal information covering:

  • VAT issues for lease assignments and terminations
  • Must the seller account for VAT?
  • Compensation
  • Variations
  • When is any VAT chargeable?
  • Assignments—apportionment of rent
  • Inducements
  • Assignments—payments by the assignor
  • Terminations—payments by the tenant
  • Compensation
  • More...

VAT issues for lease assignments and terminations

FORTHCOMING CHANGE: HMRC is in the process of revising Revenue and Customs Brief 12 (2020) on the VAT treatment of early termination fees and compensation payments. The Brief was issued in September 2020 and caused widespread consternation among VAT practitioners in that it included significant changes to HMRC’s interpretation of the law in this area, and had retrospective effect. In January 2021, HMRC announced that it would revise the Brief, and that it would not apply retrospectively, but from a future date.

This Practice Note is about VAT issues to consider on the assignment or termination of a lease.

In this Practice Note, unless stated otherwise, termination means any form of termination of a lease, including surrender, exercising an option to break, forfeiture and disclaimer on insolvency.

Must the seller account for VAT?

VAT will be chargeable on a payment to a departing tenant (the seller) on an assignment or termination of a lease for consideration if the seller has opted to tax, unless:

  1. the option is disapplied because of the type of property or its intended use (see Practice Note: Option to tax—disapplication for residential and other property)

  2. the option is disapplied under anti-avoidance rules (see Practice Note: Option to tax—disapplication under anti-avoidance rules), or

  3. it is a VAT-free transfer of a going concern (TOGC) (see Practice Note: Transfers of

Popular documents