Changes to the VAT treatment of self-storage facilities, and the associated guidance issued by HM Revenue & Customs, make it very important for landlords to know to what use their tenants (or other parties) are actually putting their property.

Normally, VAT should only be charged on rent if the landlord has formally “opted” to charge VAT. If no option to tax has been made, the landlord does not usually need to charge VAT.

The rules, which are a departure from this general rule, apply to leases and licences of storage facilities even if they were granted before 1 October 2012. The rules affect, for example, a warehouse or a unit on an industrial estate let for storage space and mean that VAT is chargeable even if no option to tax has been made.

The rules do not apply where the use of storage facilities is ancillary to the main use of a property. For example, a lease of a high street shop with a stockroom used for storage facilities is unlikely to be caught by the rules. In that example a landlord would not be required to charge VAT on rent unless it had formally opted to do so.

The rules do not affect properties in respect of which an option to tax has already been made (because VAT will already be chargeable anyway). However, the rules do affect a storage property where a third party is permitted to occupy the property for storage purposes by the tenant, so landlords will need to ensure they keep themselves informed about the actual uses of their property, whether by the tenant or others.

VAT rules in relation to supplies of property can be complicated. If you are in any doubt, our Corporate Tax team are experts in this field and are always happy to help, including drafting appropriate lease provisions to allow VAT to be charged on rent and to require the tenant to give the landlord notice of use of the property for storage.