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HMRC internal manual

VAT Land and Property

HM Revenue & Customs
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Business and non-business: peppercorn rents

A peppercorn rent is a periodic token consideration paid by the tenant to the landlord for a grant of an interest in land. It can occur, for example, where a tenant has paid a large premium.

If it is a true peppercorn rent with no other associated payments being made under the terms of the lease, including the payment of a premium, then there is likely to be no business activity present. This could result in restriction of input tax recovery since incurred costs and expenses cannot be directly linked to a taxable supply.