VAT on Rent - How does it work?

In an era where tax regulations are continually evolving, understanding the implications of VAT on rental transactions has become increasingly important for both landlords and tenants alike. Whether you're a property owner, tenant, or simply curious about the intersection of taxation and tenancy, this blog aims to provide valuable insights into VAT on rent.

If you require specific advice on any of the issues raised in this blog, we welcome you to contact our VAT Consultancy & Planning team.

VAT on residential lets

VAT is not charged on rent if the property being rented is residential. This includes:

• houses
• flats
• bungalows

Rental of residential property is exempt from VAT.

However, VAT is charged at the standard rate (20%) on the rental of holiday accommodation. Examples of holiday accommodation include:

• houses
• flats
• chalets
• villas
• beach huts
• tents
• caravans
• houseboats

Accommodation advertised as holiday accommodation and/or held out as suitable for holiday or leisure use is always treated as holiday accommodation and is standard rated for VAT purposes.

Holiday vs off-season

However, VAT is not charged on holiday accommodation let during the off-season provided it is let as residential accommodation for more than 28 days and the accommodation is in a location where the holiday trade is seasonal. The holiday season normally lasts from Easter until the end of September, although some areas, such as London and Edinburgh, are not regarded as having a seasonal holiday trade as they have large numbers of visitors throughout the year. Rental of holiday accommodation in areas with all year-round visitors is subject to VAT.

A tenancy agreement or similar evidence is required to show that the accommodation was occupied for residential purposes only and, therefore, qualifies for VAT exemption if rented for over 28 days out of season.

VAT on commercial lets

The VAT treatment of commercial property rental depends on whether the property is subject to an option to tax. Without an option to tax, the rent is exempt from VAT. If there is an option to tax, the rent is subject to VAT at the standard rate.

• Read more: VAT and landlords - the option to tax property

Even without an option to tax, there are some property transactions which are treated as standard rated for VAT purposes. For example:

• Space for storage purposes.
• Garages or designated parking spaces.
• Hairdresser chair rental.
• Room hire as part of a wedding package.
• Boxes, seats or other accommodation at a sports ground or entertainment venue such as a theatre.
• Facilities that can be used for sport or taking part in physical recreation.

However, it cannot be assumed that the above are standard rated in all circumstances as there are some exceptions which enable the rental charges to be treated as exempt. Advice should be sought to establish whether VAT is chargeable.

If you have a query relating to VAT on rental properties, or any other area of VAT, we invite you to send us a message or contact our VAT team directly.

• Learn more: Land and property VAT services