Scope: How much is chargeable: Interaction with VAT FA03/SCH4/PARA2
Chargeable consideration includes any value added tax (VAT) that is payable in respect of a land transaction. This is also the case where the VAT charged is recoverable from HM Revenue & Customs as input tax.
Where an election to waive the exemption from VAT takes effect after the effective date of a transaction any VAT that subsequently becomes payable does not constitute chargeable consideration.
This is particularly relevant to leases where a landlord may decide to elect to waive the exemption after the tenant have acquired a lease, thereby requiring the addition of VAT to the rent.
It also follows that in these circumstances VAT is not treated as a contingency.
Transfer of a going concern
- there is a transfer of a going concern
- the transfer meets all the conditions set down in the relevant VAT law no VAT will be payable.
The chargeable consideration will therefore be a VAT exclusive amount.
However if the conditions for a transfer of a going concern set down in the relevant VAT law are not met and VAT is payable, the chargeable consideration will be the VAT inclusive amount.
Effect for SDLT purposes of changes in the rate of VAT
The chargeable consideration should reflect the VAT rate position known at the effective date of the transaction. On that basis, subsequent changes to the rate of VAT do not affect the computation of SDLT liability or create the need for a further return.
The sections below explain how VAT will be treated depending on whether the effective date of the lease is before, on or after the date the rate changed.
Lease with an effective date on or after the date the rate changed
The calculation of Net Present Value (NPV) should take into account VAT at the rates applicable to the appropriate proportions of the first five years of the lease. From the effective date to the day preceding the first rent payment date on or after the rate change should be calculated at the old rate. The VAT element on the rent payable on or after the first rent payment date on or after the date the rate changed should be at the new rate.
Lease with an effective date before the date the rate changed
A further return is not required just because the rate of VAT has changed. FA 2003 Schedule 17A(7) (leases with variable or uncertain rent) is not activated by a change in the VAT rate.
However, for any lease with variable or uncertain rent, a return will usually be required in line with the normal rules.
In those circumstances, the review required by Schedule 17A paragraph 8 should include the rents paid inclusive of any VAT (Schedule 4 paragraph 2) by reference to the actual rate of VAT applying at the respective times. The calculation will use the highest rent actually paid for any 12 month period in the first five years of the term for the whole of the remaining term (Schedule 17A paragraph 7(3)).
Any return resulting from such a review has a revised effective date: the end of the fifth year of the term or, if earlier, the date at which the rent payable in the first five years of the term becomes certain. This applies for all purposes apart from interest, where the effective date remains the original effective date (Schedule 17A paragraph 8(4) and Section 87(5)). Interest will be charged on underpayments and added when tax overpaid is repaid.
HM Revenue & Customs post transaction rulings
If, following an HM Revenue & Customs ruling
- it is confirmed that VAT is chargeable in respect of a transaction
- the purchaser had not included the VAT element of the purchase price in their stamp duty land tax self assessment
the purchaser will be required to amend their land transaction return under the provisions of FA03/SCH10/PARA6.
Any additional Stamp Duty Land Tax (SDLT) due on the VAT element should be accounted for with their amendment.
Alternatively if as a result of an HM Revenue & Customs ruling
- it is confirmed that VAT is not chargeable in respect of a transaction
- the purchaser had included the VAT element of the purchase price in his SDLT self assessment
the purchaser will be required to amend their land transaction return under the provisions of FA03/SCH10/PARA6 and request a refund of the overpaid SDLT from the Stamp Office in Birmingham.