Changes to VAT announced in the Pre Budget Report 2008 affects the calculation of the net present value where VAT is charged on the rent. When calculating VAT, the tax point for rental payments is the date on which a VAT invoice is issued or a payment is received, whichever is the earlier. The rate that is in force at the tax point will be the rate that applies.

If the effective date of the grant of a lease is on or after 1 December 2008 then NPV (Net Present Value) should be estimated as follows:

• 15 per cent to 31 December 2009
• 17.5 per cent from 1 January 2010

Where the effective date of the lease is on or after 1 January 2010 the VAT rate of 17.5 per cent will apply.

As a result of the VAT changes at Pre Budget Report 2008, rents which include VAT in the NPV calculation will be viewed, for Stamp Duty Land Tax purposes, as rents which are variable or uncertain. When the amount of rent payable for the first five years of the term of the lease becomes certain the purchaser can review the NPV payable on the rent and submit a return to HMRC. At that point if NPV calculation was based on the VAT rate of 17.5 per cent and resulted in an overpayment a claim for repayment can be made.

Further details on the impact of the VAT rate change on SDLT are available at Section 2.06.