Lease surrenders: overpaid SDLT and VAT?

If you have previously paid irrecoverable VAT, SDLT or both on the surrender of a lease, there may be an opportunity to reclaim the VAT and some of the SDLT paid. This opportunity arises because of a change in HMRC policy. Read on…

The transfer of a business as a going concern (TOGC) is outside the scope of VAT. About a year ago, following the decision in Robinson Family, HMRC changed their practice and conceded that in some circumstances the grant of a lease could amount to a TOGC (for the details, see our briefing note). HMRC said at that time that they were considering how, if at all, the decision applied to the surrender of a lease. And now, having cogitated for a year, HMRC have announced that a surrender of a lease may also qualify as a TOGC. This will apply, for instance, where a tenant subletting premises by way of business subsequently surrenders its interest in the property together with the benefit of the subtenants, or where a retailer sells its retailing business to its landlord. In substance the landlord has in each case acquired the tenant’s business.

It follows that VAT may in the past have been charged in respect of transactions which HMRC now recognise were outside the scope of VAT. So excessive VAT will have been paid over. Where the VAT charged has been recovered in full by the landlord, the change in VAT policy may not have any financial effect. However, if the landlord was unable to recover the VAT suffered on the lease surrender, there will be an opportunity to recover the previously irrecoverable VAT. In addition, since SDLT is paid on the VAT-inclusive consideration, it follows that if VAT was charged in error, SDLT will also have been overpaid. So a claim can also be made for a refund of the overpaid SDLT.

If you would like to discuss reclaiming VAT, SDLT (or both) paid on a previous grant or surrender of a lease which under the revised practice may count as a TOGC, please get in touch with your usual BKL contact or use our enquiry form.

Andrew Levene

Director of Property Taxes

T +44 (0)20 8922 9394
E andrew.levene@bkl.co.uk

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