Is VAT charged on a lease assignment premium?

The assignment is a supply by the outgoing tenant of their interest in land. It follows the assignor's position — exempt unless they have opted to tax the property.

Is that different from a new lease?

Yes. The grant of a new lease is a supply by the landlord, so it follows the landlord's position and any option to tax they have made.

Do I inherit the assignor's option to tax?

No. An option belongs to the person who made it. If you want to charge VAT on a sublet, or recover VAT on your costs, you need your own option.

Will I pay VAT on the rent after assignment?

That follows the landlord's option to tax, independently of how you acquired the lease. Check the landlord's position as well as the assignor's.

VAT on commercial property

VAT on Buying a Leasehold Interest

PropertyVAT Team · Updated 21 October 2026 · 3 min read

Buyers of leasehold interests often ask "is there VAT on this?" without separating two different questions: VAT on acquiring the lease, and VAT on the rent afterwards. They have different answers, determined by different people.

Assignment versus grant

	Assignment	Grant of a new lease
Who supplies	The outgoing tenant	The landlord
Whose VAT position applies	The assignor's	The landlord's
What you receive	The existing lease, as it is	A new lease on new terms
Premium treatment	Follows the assignor	Follows the landlord

So on an assignment, the question "has the landlord opted to tax?" is not the one that determines VAT on your premium. The relevant option is the assignor's.

This catches people regularly, because the landlord is the more visible party and the one everyone asks about.

Two separate questions

On acquisition. Does the assignor charge VAT on the premium? That follows their option to tax.

On rent, going forward. Does the landlord charge VAT on rent? That follows the landlord's option, and is unaffected by how you acquired the lease.

You can have VAT on one and not the other, in either combination. Establish both.

Reverse premiums on assignment

Where the lease is onerous, the assignor may pay you to take it.

That reverses the direction of supply, and the analysis shifts to what you are giving in return — typically taking on the lease obligations. Whether that is a taxable supply by you depends on the facts.

The treatment of reverse premiums on assignment is not uniform, and it is worth advice where the sums are significant. A payment received that turns out to carry an output tax liability is an unwelcome discovery.

What you do not inherit

The assignor's option to tax. An option belongs to the person who made it. It does not pass with the lease.

If you intend to sublet and charge VAT on rent, or you need to recover VAT on costs relating to the property, you will need to make and notify your own option.

The assignor's registration. Obvious when stated, but worth confirming for the entity actually taking the assignment.

What you should ask about

Historic VAT matters attaching to the property can affect you. Ask about:

Whether the property is within a Capital Goods Scheme adjustment period
Any ongoing VAT disputes relating to the premises
How service charges are treated by the landlord
Whether the landlord has indicated an intention to opt to tax

That last one is practical. If the landlord has not opted but may do so during your term, the lease wording determines whether they can add VAT to your rent. For a tenant who cannot recover, that is a material future exposure.

For a tenant who cannot recover

If your business makes exempt supplies, assess both questions before committing:

VAT on the premium is a one-off cost if charged
VAT on rent is a recurring 20% for the life of the lease

The second usually dwarfs the first. Establish the landlord's option position and the lease wording on adding VAT before you take the assignment, not after.

What to establish

Has the assignor opted to tax, and will VAT be charged on the premium?
Has the landlord opted to tax, and is VAT charged on rent?
Does the lease permit the landlord to add VAT if they opt later?
Do you need your own option to tax for your intended use?
Is the property within a Capital Goods Scheme period?
How are service charges treated?

This guide is general information, not tax advice. Assignment and grant VAT differ and reverse premiums are fact-specific — take specialist advice.

Frequently asked questions

Is VAT charged on a lease assignment premium?: The assignment is a supply by the outgoing tenant of their interest in land. It follows the assignor's position — exempt unless they have opted to tax the property.
Is that different from a new lease?: Yes. The grant of a new lease is a supply by the landlord, so it follows the landlord's position and any option to tax they have made.
Do I inherit the assignor's option to tax?: No. An option belongs to the person who made it. If you want to charge VAT on a sublet, or recover VAT on your costs, you need your own option.
Will I pay VAT on the rent after assignment?: That follows the landlord's option to tax, independently of how you acquired the lease. Check the landlord's position as well as the assignor's.

Related guides

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