VAT on Commercial Lease

Hi Everyone,

First time here so i hope i am posting in the correct place.

I have had a lease on a commercial property for the last 4years and 9months and paying rent which i have been paying VAT on at 21.5%. My lease has expired a month ago. I would like to negotiate a new lease and was wondering what the VAT implications for me or the landlord would be if I asked not to pay VAT. I am not able to become VAT registered due to the nature of the business therefore I am unable to claim VAT back. The building is approx 10years old.

All guidance / advice welcome

thanks

I did some research into this. AFAIK it is totally up to the landlord and they could restart (if they stopped) at any point in time. At the end of the day it depends on whether the landlord is reclaiming the VAT against the building or and other property they may have.

This is a very complex area. It is more fraught for the landlord than yourself. From the outline I think I can summarise the issues for you.

Your landlord will have reclaimed VAT when he acquired his interest in the property whether freehold or leasehold 10 years ago.

Say for example the vat reclaim was €100k



If he leased it and did not charge VAT this would be called making an exempt supply i.e. no VAT charged.

If you make an exempt supply, you cannot reclaim VAT.
Therefore, he would suffer a clawback of part of the €100k based on the formula

100 x Exempt lease term/20

Take a 5 year lease this would cost him a clawback of 25k.


Before July 2008, the rules were even more complex. A lease under 10 years was an exempt supply. However, the landlord could waive his exemption if he charged VAT on all his commercial rents

Since July 2008 the rules changed. Now, all leases start as non-vatable.

The landlord has the option to 1.e. charge VAT on the lease. If he does not the following rules apply

If he owns the freehold he would have to pay 1/20th of the VAT reclaim i.e. k annuallly for the lease term

If he is subletting a lease which he had got pre July 2008, in this case 10 years ago he would have to repay VAT equivalent to

100*10/20 i.e.the remaining lease term over 20 years. He would get some of this back on a subsequent lease if he chrged VAT on it.

I said it was complex. I was not joking.

However, as you can see the landlord has a lot at stake.

Depending on the money involved, there could be negotiation to compensate him for not charging VAT. However, this could be expensive.

if he got money from you, it would also need to be grossed up for Income tax or Corporation Tax and stamp duty.

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