Following the VAT rate change on December 1, HMRC has now made an announcement on the SDLT treatment of leases where VAT is payable on rents. See Calculating VAT on leases from 1 December 2008. As suggested in the CPI Update for December, a more complicated assessment of SDLT is now required, because VAT is now chargeable at 15% until 31 December 2009, and thereafter at 17.5%. Interestingly, HMRC state that the effect of the 1 December rate change is that rents which include VAT will be viewed, for SDLT purposes, as rents which are variable or uncertain; yet when the VAT rate returns to 17.5% on 1 January 2010, HMRC will treat the rents as certain. This seems slightly odd in that the VAT-inclusive rent is considered to be uncertain because of a known rate change, but certain thereafter notwithstanding potential unknown future rate changes. Yet this leads to greater long-term certainty in that we can ignore any unknown future changes (e.g. the allegedly non-existent hike to 18.5%…). Technically, because the reduction to 15% has rendered VAT-inclusive rents uncertain in the eyes of the Revenue, overpayments of tax may have occurred – but not in such amounts as causes the Revenue to rush to satisfy demands for repayments.
Property PSL