New queries, issue 4562

Rent apportionment

Allocation of rent between commercial and residential property for VAT.

A client bought an investment property on which the vendor had waived the landlord’s VAT exemption. The property comprised ground floor commercial premises and residential accommodation (used if at all by employees of the ground floor business) on the upper floors. The price of £m was apportioned 55% to the commercial and 45% to the residential premises for VAT purposes.

The transaction was not treated as a transfer of a going concern and VAT was charged on the commercial part but not on the residential. Stamp duty land tax (SDLT) was charged on the VAT inclusive consideration of £1.1m. My client registered for VAT recovered the VAT and leased back the property to the vendor at an arm’s-length rent. VAT is charged on 55% of the rent and only 55% of...