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VAT on premium

07 January 2014
Issue: 4434 / Categories: Forum & Feedback , VAT

For more than 30 years, a trader let the office above his shop to a firm of solicitors and charged VAT on the rent. However, HMRC have not been notified of an option to tax the property

My client has traded as a grocer (sole trader) for more than 30 years and owns the freehold of the building from which he trades. This comprises the ground-floor grocery shop and a first-floor office which for the past 21 years he has rented out to a third-party solicitor.

He has always charged VAT on the rent from the first-floor letting but says he has never opted to tax the property with HMRC.

The client is now retiring and is granting a 21-year lease on the ground-floor shop premises with an advance lease premium charged of £50 000.

The leaseholder will trade as a takeaway kebab business. I advised the client to charge VAT on the £50 000 premium because he has been charging VAT on rent since 1992 but the buyer has asked for proof of the option to tax election with HMRC before...

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