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HMRC internal manual

VAT Land and Property

Option to tax anti-avoidance - funding and financing: other payments or transfers from tenant to owner - funding or not?: incidental or trivial payments

In many cases the tenant and landlord will build into the contract binding conditions whereby the tenant, if particular circumstances occur, is obliged to pay for certain incidental amounts of expenditure. This will often mean that the tenant reimburses the landlord for his costs.

For example, a tenant may be obliged to pay for the professional costs associated with additional fit out works or legal fees to change the terms of the lease. If such payments for incidental professional costs are the only financial contribution made by the tenant to the landlord, they can be ignored for the purpose of this measure and the tenant will not be deemed to be the financier of the development.


Funding Not funding
Tenant’s contribution to landlord’s fitting out costs, for example, funding something which becomes the landlord’s capital item. Rents and service charges.
Agreement to pay premium entered into before construction completed and paid for, which is then used to finance that construction. Agreement to pay premium entered into after construction has been completed and paid for.
Transfers of land by tenants to landlords at less than open market value or at nil consideration. Transfer of land by tenant to landlord at open market value.
  Tenant paying the landlord or third party contractor direct in relation to the tenant’s own capital item.
  Bank providing normal commercial finance for development and later quite separately takes a lease of part of the development.
  Incidental or trivial payments.
  Tenant signing up to an agreement to lease and the prospective rental income is used to secure third party funding.