VAT and Stamp Duty Land Tax changes for landlords

As a result of the coronavirus pandemic some of your tenants may seek variations to the terms of their lease. As part of any discussion the potential VAT and or Stamp Duty Land Tax (SDLT) issues should be considered. If they are not accounted for they may create a cost or a risk of penalties. 

To help with this HMRC have now issued guidance as to the VAT and SDLT treatment of typical lease variations. This guidance highlights that whilst in most cases no additional VAT liability will be created, where the tenant agrees to undertake specified actions in return this can create a VAT accounting responsibility for both the tenant and the landlord. In addition, some changes to leases may result in an SDLT liability and a requirement to file a land transaction return with HMRC.

There may be possible changes if, for example:

  • a landlord reduces the rental amounts payable but there are no other changes to the lease;
  • a tenant reduces the rental amounts payable but there are no other changes to the lease;
  • a landlord changes the terms, and, in exchange, the tenant agrees to more than paying rent during the lease; and
  • new leases are agreed.

From a direct tax perspective the tax impact of any variation to the lease will be driven by the accounting treatment which may have a significant impact to the tenants - read our thoughts on this here.

If you would like to discuss the HMRC guidance and how you can ensure that you are getting it right, please contact Ian Carpenter.

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