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HMRC internal manual

VAT Land and Property

Supply: variations to leases

Leases may be varied for a number of reasons. Sometimes the variation is to alter one or more of the terms, such as lifting a prohibition. At other times the variation is more fundamental, such as extending the term of the tenancy. In these latter situations, English land law requires the surrender of the existing lease and the grant of a new one. Often a consideration will be paid for the variation, either to or by the landlord.

Business was concerned that we would see a VAT supply taking place in circumstances that amounted to no more than a variation of the lease. To address these concerns a Statement of Practice was agreed with the Law Society in 1991.

The Statement of Practice describes when the variation of a lease does and does not give rise to separate supplies of the surrender of the old lease and the grant of a new one. It has been revised to take account of changes in the law. You will find a copy of the Statement of Practice in section 27.