Real Estate Tip of the Week: Surrenders can be taxing
Published 9 March 2015
When a landlord agrees to pay its tenant to surrender its lease, alarm bells usually ring about checking the VAT position. It is, in fact, quite simple; no VAT will be payable by the landlord unless the tenant has exercised the option to tax.
It is however all too easy to forget about Stamp Duty Land Tax. A surrender where the landlord pays the tenant a premium is no different from any other acquisition of a property interest. Stamp Duty Land Tax will always be payable, subject to the usual thresholds, and if the tenant has opted to tax the SDLT will be on the VAT-inclusive sum, so 20% more than if there had been no option to tax. If during negotiations for the surrender it becomes clear that the tenant has not opted to tax but is thinking of doing so, it may be worth offering to increase the surrender premium if the tenant will agree not to opt to tax.