For further information, please contact Gideon Dabby-Joory, Partner, Fladgate LLP (firstname.lastname@example.org)
It is understandable that landlords aim to increase the value of their investments, and letting or licensing parking spaces is a lucrative way to do so.
Letting or licensing parking spaces appears to be a straightforward matter which can be dealt with quickly, at a low cost and with a substantial return. However, there are VAT pitfalls which landlords should be aware of.
The basic position is that if landlords provide facilities for parking vehicles, the supply will be standard-rated in respect of VAT. This includes letting a taxi rank, bicycle storages and caravan storage (but excludes the supply of a houseboat mooring). It is irrelevant if the building is opted to tax.
There are some exemptions:
- If a freeholder makes a zero rated sale or grants a long lease of a building designed as a dwelling or number of dwellings and it supplies a garage or other parking facility to the purchaser of that dwelling, a freeholder can zero rate the garage or other parking facility if:
- the garage or parking facility is reasonably close to the dwelling; and
- it is intended to be used in conjunction with the dwelling.
- The first sale or grant of a long lease of a parking facility is also zero rated if the garage or parking facility is within the ‘site’ of a building designed as a dwelling or number of dwellings and the grant is made by the developer. For example, a developer sells a long lease of a flat to an individual who decides several months later to purchase a long lease in a parking space within the site of the block of flats from the same developer. This exemption does not apply once the developer sells the freehold interest.Please note that in the case of long leases, zero rating only applies to the extent that consideration under the long lease is a premium or first rental payment for the parking space.
- For leasehold properties the supplies may be exempt if the licence or lease includes the provision of parking facilities (even though these are only to be made available at a later date), or an obligation on the tenant to accept a later grant of parking facilities in return for a periodic rent or licence fee payable to the same landlord, the supplies of the parking facilities are exempt as long as the garage or parking facility is reasonably close to the dwelling and it is intended to be used in conjunction with the dwelling.
It is advisable for landlords to deal with this point when negotiating the heads of terms with any potential tenant or licensee. Landlords do not want to lose a tenant during the negotiation of legal documents if the tenant discovers it is paying 20% more than originally envisaged.