VAT on Property Inducements: New Uncertainty

Commercial property transactions often include complex financial arrangements which can lead to uncertain VAT treatment. Two recent cases challenge the current approach by Customs to reverse premiums.

In order to encourage a prospective tenant to take a lease, the landlord may pay an inducement payment, or reverse premium. This may be linked to the tenant agreeing to carry out repairs or refurbishment works. Similarly a tenant may offer a payment to an assignee to induce them to take over the lease. Customs have traditionally treated these payments as VATable - there is a supply of services by the tenant/assignee. In particular, the contribution by a landlord to a tenant's fitting out costs has been treated as VATable consideration.