30 July 2020

Can rent concessions result in a VATable supply?

A question which has been considered by many landlords, tenants and advisors over the past few months but for which we now have the answer courtesy of HMRC.

The impact of COVID-19 on businesses has meant that some landlords have been prepared to offer rent concessions (such as rent deferrals and rent free periods) to their tenants. In return, a tenant may agree to enter into a reversionary lease or amend or remove a break clause in the existing lease.

While such agreements are to be welcomed at the current time, there has been concern amongst landlords, tenants and their advisors that HMRC could view these transactions as involving a barter for VAT purposes, with the landlord's supply being agreeing to the rent concession in return for the tenant's supply of taking a reversionary lease or varying a break clause.

Fortunately, HMRC have now published a briefing note (Revenue & Customs Brief 11 ( 2020): VAT and Stamp Duty Land Tax when existing leases between landlords and tenants are varied) confirming that if the tenant just agrees to pay rent under an extended lease or agrees to vary a break clause, they will not be regarded as having made a supply to the landlord; HMRC see this simply as an agreement by the tenant to pay rent.

That said, it is important to bear in mind that the position would be different if the tenant agreed to do works for the landlord in return for a rent concession; in those circumstances, the tenant would, in doing the works, be providing a supply to the landlord.

The HMRC briefing note also reminds tenants that they need to consider the Stamp Duty Land Tax consequences of the agreement reached with the landlord. For example, if the tenant is granted a reversionary lease the Stamp Duty Land Tax liability will be triggered when the lease is granted and not later when the term of the lease actually starts.

The confirmation by HMRC will be welcomed by landlords, tenants and their advisors alike and will hopefully mean that there is one less issue keeping us awake at night.

Heather Corben is a Partner in the Corporate Tax team.


The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.

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