If a UK taxpayer owns the freehold of a property and lets a charity use the property for free or at a below market rate, the taxpayer can claim tax relief by creating a leasehold interest in the property and granting it to the charity. The creation of a leasehold interest should also be effective for stamp duty land tax relief and for business rates relief.
The granting of a lease on property intended for use for charitable purposes qualifies for relief from stamp duty land tax and if the lease creates a separate rateable interest in the property, that interest will qualify for 80% mandatory rates relief provided the property will be used wholly or mainly for charitable purposes. Landlord’s expenses, though in this instance failing the ‘wholly and exclusively’ test, are eligible for tax deduction up to the level of rent received from the charity.
From a VAT perspective, free or non-commercial leasing may constitute a non-business activity and as such the landlord may be unable to recover input VAT. Those considering this should always take advice to ensure any tax requirements are followed.
