Is There VAT on Rent in the UK?

Most residential rent is VAT exempt, but commercial and serviced properties may be taxable. Learn how VAT applies to different types of rental income.

If you’re a landlord, tenant or property investor in the UK, you may be wondering whether VAT applies to rent. The answer depends on the type of property being let, whether the landlord is VAT registered, and the nature of the agreement.

This guide explains when VAT applies to rent, including residential lets, commercial property, serviced accommodation, holiday lets, and new developments, as well as what landlords need to know about VAT registration and property conversions.

Understanding VAT?                                                    

VAT (Value Added Tax) is a tax charged on most goods and services in the UK. The standard rate is 20%, with some goods subject to 5% or 0% rates, and others exempt from VAT entirely.

VAT applies to the supply of goods or services made by VAT-registered businesses. Property can fall into various categories depending on whether it's a residential or commercial let, newly developed, or used for short stays.

What Is the VAT Treatment for Residential Lets?

Most residential rent is exempt from VAT, which means:

  • Landlords do not charge VAT on rent to tenants

  • Landlords cannot reclaim VAT on related costs (e.g. renovations or agent fees)

This applies to long-term residential lets such as:

  • Flats, houses and apartments rented to individuals

  • Social housing and housing association lets

  • Residential leaseholds

Because residential letting is VAT exempt rather than zero-rated, landlords are not able to recover VAT on most expenses related to the property.

What Is the VAT Treatment for Commercial Lets?

Commercial property rental is more complex. By default, commercial rents are exempt from VAT, but landlords can opt to tax a commercial property, which then allows them to:

  • Charge VAT on rent (usually at 20%)

  • Reclaim VAT on associated costs (repairs, renovations, legal fees)

Opting to tax is a formal process through HMRC. Once in place, the landlord must charge VAT on rent to VAT-registered tenants and account for it in their VAT returns.

This applies to:

  • Office space

  • Retail units

  • Warehouses

  • Industrial premises

Some tenants may be unable to reclaim VAT (e.g. charities, exempt businesses), making VAT a cost that affects their decision to lease.

Do I Need to Register for VAT as a Landlord?

You must register for VAT if your VAT-taxable turnover exceeds £90,000 in any 12-month rolling period. This includes:

  • Commercial rents where VAT is charged

  • Income from holiday lets or serviced accommodation (if not exempt)

Residential rental income on its own does not count towards the VAT threshold unless you're providing additional taxable services.

Voluntary VAT registration is possible, particularly if you want to reclaim VAT on property-related expenses.

How Long Does VAT Registration Take for Property?

Registering for VAT through HMRC typically takes 2 to 3 weeks, though property-related applications can be delayed due to the need for additional documentation.

If you’re opting to tax a commercial property, you must notify HMRC using Form VAT1614A, and you may need to submit option-to-tax certificates or lease agreements as evidence.

What Is VAT on Serviced Accommodation?

Serviced accommodation is often treated like a hotel or short-stay facility. If you're letting out a property that includes:

  • Daily or weekly cleaning

  • Bed linen and towels

  • Breakfast or reception services

then it’s considered holiday or serviced accommodation, and VAT is chargeable at 20% if your turnover exceeds the threshold. This applies even if the property is residential in nature.

You must then:

  • Register for VAT

  • Charge VAT on bookings

  • Provide VAT invoices if requested

  • Submit VAT returns quarterly

What Is VAT on New Residential Development?

The sale or long-term lease of a new residential building is usually zero-rated, meaning:

  • No VAT is charged to the buyer or leaseholder

  • The developer can reclaim VAT on construction costs

However, if the property is rented out long-term, future rent is exempt, and the developer may face VAT clawback on previously reclaimed input VAT.

Understanding the intended use of the property is critical before deciding on VAT registration or tax planning.

Do I Charge VAT on Holiday Lettings?

Yes – holiday lets are considered short-term commercial accommodation. If you're renting out a property for short stays, such as via Airbnb or Booking.com, and your turnover exceeds £90,000, you must:

  • Register for VAT

  • Charge 20% VAT on bookings

  • Provide valid VAT invoices

  • Submit VAT returns

If you're below the threshold, registration is optional but may be useful for reclaiming costs.

VAT on Property Conversion

If you convert a non-residential property (such as a barn or commercial unit) into residential accommodation:

  • The conversion may qualify for reduced-rate VAT at 5% on building services

  • The sale of the converted property may be zero-rated if sold as a new dwelling

  • Long-term lets are VAT exempt, but sales can allow input VAT recovery

Professional VAT advice is essential when undertaking property conversion or development projects due to the complexity of the rules and the value of potential VAT claims.

Final Thoughts

Whether or not VAT applies to rent in the UK depends on the type of property, length of letting, and whether the landlord has opted to tax. Long-term residential lets are typically VAT exempt, while commercial and short-term lets may attract 20% VAT.

Landlords must assess their rental income against the VAT threshold and register if required. For commercial and serviced accommodation, VAT registration brings both administrative responsibilities and the opportunity to reclaim input VAT.

Understanding how VAT applies to your rental setup can help avoid mistakes and ensure you're managing your property business in a compliant and tax-efficient way.