VAT issues for lease assignments and terminations

Produced in partnership with Martin Scammell

Practice notes

VAT issues for lease assignments and terminations

Produced in partnership with Martin Scammell

Practice notes

This Practice Note is about the 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:

•
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)
•
the option is disapplied under anti-avoidance rules (see Practice Note: Option to tax—disapplication under anti-avoidance rules), or
•
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 termination for consideration will be exempt unless:

•
the property is such that mandatory standard-rating

Martin Scammell

Martin Scammell is an independent VAT consultant, specialising in property and construction matters, who works with tax departments in major corporates and universities, and with a number of law and accountancy firms. He is the author of the leading reference work on VAT and property.

Martin started out in VAT Policy in Customs & Excise, was a Partner at Ernst & Young, where he headed up the VAT real estate group, and then became head of indirect tax at Eversheds.

He has been involved in the development of VAT legislation and policy over many years, and regularly serves on working parties established by HMRC. He was a member of the Office of Tax Simplification’s consultative committee for their review of VAT in 2017, and in 2018-19 of HMRC’s external stakeholder group considering the proposed reverse charge for building work. Martin currently works with HMRC as technical secretary to the British Property Federation’s VAT Committee, as an adviser to the British Universities’ Finance Directors’ Group and as a member of HMRC’s Joint VAT Consultative Committee and VAT Land and Property Liaison Group. He is a member of the Chartered Institution of Taxation’s indirect taxes and property taxes committees.

Jurisdiction(s):

United Kingdom

Key definition:

Forfeiture definition

What does Forfeiture mean?

Forfeiture is the lost right to possession.

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