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Reasons to move
Sometimes, a landlord is so keen to get a tenant into an empty property that a "reverse premium" will be paid as an incentive. Instead of the tenant paying the landlord for the lease, the landlord pays the tenant to sign it. This has caused a number of tax problems over the years - the rules were changed a few years ago to make sure that a business receiving a reverse premium should pay tax on the income, and there has been a recent VAT case in the European Court to decide whether the recipient should give Customs some of the money.
The result of that case was inconclusive - the judges thought that it might be VATable if it related to something done for the landlord, but not if it only represented an inducement to enter into the lease. The "something done" might be the service of attracting other tenants, for example by being a well-known name who would attract interest to the development by moving in.
When the case came back from Europe to the High Court, Customs persuaded the judge that this particular reverse premium was
VATable. They have now published their view that this means reverse premiums are usually VATable - which seems to ignore the view of the European Court.
If you are offered such an inducement payment, it is worth thinking about the tax consequences. If it is tax free, it is that much more attractive. If it is taxable and
VATable, it may be less so. We will be pleased to advise you.
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The case was Mirror Group plc (aka Trinity Mirror plc) v Commissioners of Customs & Excise. Customs' general view is set out in Business Brief 04/2003. There is a strong argument that an incentive paid in circumstances where there cannot be any "advertising" (e.g. where there is a building with only one tenant), the ECJ judgment means that the payment is not
VATable.
If the landlord has opted to charge VAT on the rent, it does not make a great deal of difference - the landlord would be able to recover any VAT charged by the tenant on a reverse premium. But it would still be important for landlord and tenant to agree whether the figure included or excluded VAT.
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