Have you made changes to the rent or lease on a commercial property rental contract? Check our guidance to HMRC rules about VAT and stamp duty liability.

Lease extensions and rent variations are nothing new, but the recent pandemic has brought them under the spotlight. With many businesses experiencing financial difficulties, there has been a sharp increase in the number of contractual changes being sought to be made.

For some time, there has been an unanswered question about the impact of variations and extensions on VAT and SDLT (Stamp Duty Land Tax). More specifically, the potential for HMRC to view an agreement to make changes as a barter arrangement, thereby influencing VAT, has been a concern.

HMRC have released some guidance around the subject which has helped to clarify the circumstances where a barter arrangement might be considered as arising. Although this guidance has arisen from the effect of COVID-19 on commercial property, it is not limited and is intended to have more general application.  


In the past, many tenants and landlords have adopted the strictest possible interpretation of the law, primarily due to the absence of clear guidance from HMRC. This latest information appears to take a more lenient view than that which may have been followed in the past, even those who approached HMRC for advice.

This means that there may well be fewer agreements which would satisfy the terms for a true barter arrangement.

If a tenant and landlord reach an agreement to change the terms, such as offering a rent-free period or reducing the frequency at which rent is payable, providing no consideration is provided in return, it will not be considered as a barter arrangement. The tenant may pay a peppercorn token fee without it affecting the status.

However, if the tenant agrees to offer consideration in return for the changes to the rent, it would qualify as a barter arrangement and have VAT implications.

In the past, questions have been raised about the nature of what offering consideration could be construed as. HMRC have now made it clear that anything to do with the normal tenants’ duties are not classified as providing consideration. This includes agreeing to continue paying rent, agreeing to remove a break clause or extending the lease.

Although individual consideration will be required, HMRC advise that only when a tenant agrees to do something out of the ordinary, such as renovating or carrying out work on the property in return for reduced rent, will they be classed as entering a barter arrangement.

Stamp Duty

Similarly to VAT, if the tenant does not agree to provide any work, services or other consideration in return for changes to the rent, there may not be any new liability under SDLT. This includes the amount of rent being changed and clauses being broken.

However, SDLT liability may arise if the tenant provides consideration or supply of services, or pays a lump sum in order for changes to be made.

There are other circumstances which may lead to an SDLT liability, which can be viewed on the full HMRC guidance here.