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The hidden and unexpected VAT costs created by barter transactions and rent free periods

On many occasions, property transactions involve the giving or receipt of consideration other than, or in addition to, money.

These are termed barter transactions and it is important for those involved to understand the VAT implications to ensure that there are no unexpected VAT costs.

Carolyn Van Hecke, Senior VAT Manager explains a situation she came across recently and how a client was spared a £20k VAT expense with a bit of careful planning.

Carolyn’s client was a landlord who was a non- VAT registered individual with a tenant who had a VAT registered company.

The tenant agreed to carry out refurbishment works costing £100k plus standard rate VAT (£20k) in recognition of a rent-free period. The premises involved were residential so there was no ‘option to tax’.

This arrangement would have resulted in a VAT cost of £20k to the landlord which could not be recovered.

Carolyn found a solution for the client which removed the VAT cost entirely. This was for the landlord to charge £100k rent to the tenant which was VAT exempt and for the tenant to engage the builders to complete the works – the tenant as a VAT registered company was able to recover the VAT input tax and so £20k VAT was saved by the client.

Whilst this is a simple example, barter can arise in more complex property transactions, such as a sale and leaseback. It is important that the VAT implications of such transactions are properly addressed.

Contact us for advice if you would like any more information.


The information was correct at time of publishing but may now be out of date.

Posted by Cowgills
19th December, 2019
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