VAT treatment of assignment or surrender of lease
Produced in partnership with Martin Scammell
VAT treatment of assignment or surrender of lease

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

  • VAT treatment of assignment or surrender of lease
  • Must the seller account for VAT?
  • Compensation
  • Variations
  • When is any VAT chargeable?
  • Apportionment of rent
  • Inducements
  • Surrenders—payments by the tenant
  • Assignments—payments by the assignor
  • Capital goods scheme implications

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

Must the seller account for VAT?

VAT will be chargeable on an assignment or surrender of a lease for consideration if the seller (ie the departing tenant) 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 a going concern involving land and buildings)

If the seller has not opted to tax, an assignment or surrender for consideration will be exempt unless:

  1. the property is such that mandatory standard-rating applies (see Practice Note: Exclusions from the exemption from VAT for land and buildings)

  2. the supply is zero-rated—zero rating applies in certain circumstances to:

    1. dwellings

    2. some categories of residential and charitable buildings, and

    3. residential conversions

  3. the supply is standard-rated under rules for buildings that were completed before 1 March 2011 and were originally zero-rated as for certain residential or charity uses (see Practice Notes: Zero-rated sales and leases—person constructing a relevant residential building and Zero-rated sales and leases—person constructing a relevant charitable