VAT treatment of grant of lease
Produced in partnership with Martin Scammell
VAT treatment of grant 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 grant of lease
  • What to consider
  • Is VAT chargeable?
  • When is any VAT chargeable?
  • Further payments by tenants
  • Variations
  • VAT clauses
  • Payments to incoming tenants
  • Rent-free periods
  • Other forms of inducement
  • more

What to consider

On the grant of a lease, you will need to consider:

  1. whether VAT is chargeable

  2. when it might be chargeable

  3. service charges and other payments

  4. what VAT provisions should be included in the lease, and

  5. the treatment of incentives offered to the tenant

Note that VAT does not generally distinguish between rent and a lease premium. A reference to a lease being chargeable to, or exempt from, VAT therefore applies both to any premium and any ongoing payments of rent.

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)VATA 1994, Sch 10, Pt 1, paras 5–11

  2. the option is disapplied under anti-avoidance rules (see Practice Note: Option to tax—disapplication under anti-avoidance rules), orVATA 1994, Sch 10, Pt 1, paras 12–17

  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)Value Added Tax (Special Provisions) Order 1995, SI 1995/1268, art 5Robinson Family v HMRC [2012] UKFTT 360 (TC)VTOGC6250

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 Note: Exclusions from the exemption from VAT for land and buildings)VATA 1994, Sch 9, Pt II, group 1

  2. the lease