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HMRC internal manual

VAT Construction

Zero-rating major interest grants in buildings: major interest grants: lengthening the period of the lease

Where the parties to a lease intend that its period should be for a period eligible for zero-rating, but due to an oversight or mistake enter into a lease for a shorter period, they may enter into a Deed of Rectification to amend its period to a qualifying term.

The Tribunal decided in Charles Stuart and Janet Margaret Isaac (VTD 14656) that when this happens the Deed of Rectification corrects the lease to a major interest with effect from the date of the original lease. This means that the lease is treated as any other grant of a major interest would be, and input tax incurred on the construction costs is deductible subject to the normal rules.