Where a landlord grants a rent-free period to a tenant entering into a lease (and the tenant does nothing, apart from entering into the lease, in consideration of the rent-free period), HMRC do not regard the rent-free period as giving rise to any charge to VAT. On 18 December 1991, Gillian Shepherd, the Minister then responsible for HMRC, stated in the House of Commons:

‘It is long-standing Customs policy that rent-free periods are outside the scope of VAT unless services are performed in return by the tenant for the landlord. As this is uncommon in practice, only a few cases will lead to VAT being charged.’

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