One of the questions we get asked by tenants is 'why does the landlord not provide me with a VAT invoice for the rent deposit at completion?'.

Where a landlord has opted to tax a property, VAT will be payable on the rent. As such it is common practice for landlords to require the rent deposit to include a sum equivalent to the VAT on the rent deposit sum.

For example, if the annual rent is £100,000 plus VAT and the landlord had agreed a six months’ rent deposit, the rent deposit payable on completion will be £60,000 (made up of £50,000 plus VAT of £10,000) and not £50,000. This ensures that the landlord will not be out of pocket for the VAT should the tenant fail to pay its rent.

However, the VAT liability does not arise on completion, but rather when the landlord withdraws money from the rent deposit in satisfaction of unpaid rent or service charge payments. It is therefore unnecessary for the landlord to produce a VAT invoice when it makes a withdrawal from the rent deposit in respect of unpaid rent or service charge as the tenant will have already been provided with a VAT invoice.