VAT issues for new and ongoing leases
Produced in partnership with Martin Scammell
VAT issues for new and ongoing leases

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

  • VAT issues for new and ongoing leases
  • Is VAT chargeable?
  • When is any VAT chargeable?
  • VAT recovery by the tenant
  • Inducements
  • Rent-free periods
  • Other forms of inducement
  • Payment of rent
  • Rent review
  • Tenant paying landlord’s costs
  • more

This Practice Note is about the VAT issues to consider on the grant of a lease or under an ongoing lease. These include:

  1. whether VAT is chargeable

  2. when it is chargeable

  3. the tenant’s VAT recovery position

  4. inducements

  5. payment of rent

  6. payment of landlord’s costs by the tenant

  7. variations to the lease

  8. tenant default, and

  9. what VAT provisions should be included in the lease

For the VAT issues to be considered when a lease is assigned or terminated (including by surrender), see Practice Note: VAT issues for lease assignments and terminations.

Is VAT chargeable?

If the landlord has opted to tax, VAT will be chargeable 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. the lease can be treated as a VAT-free transfer of a going concern—this might be relevant if the lease is for a premium, such that there is little value remaining in the landlord's interest in the land (see Practice Note: Transfers of a going concern involving land and buildings)

If the landlord has not opted to tax, the lease will be exempt from VAT unless:

  1. the property is such that mandatory standard-rating applies (see Practice