AITI Chartered Tax Adviser

Property transactions

Letting of property is exempt from VAT although a lessor of a non-residential property can opt to charge VAT on the rent.

Complex issues can arise in relation to:

  • disposal of a reversionary interest under the pre-1 July 2008 legislation,
  • surrender or assignment of leases in existence on 1 July 2008 (legacy leases),
  • adjustment of the deductibility entitlement of a person carrying both a taxable and an exempt activity (capital good scheme),
  • disposal of a property by a person who had waived his exemption from VAT under the pre-1 July 2008 rules,
  • joint option between vendor and acquirer to tax an exempt sale.

We review VAT Requisitions on Title and ensure the appropriate clauses from The Law Society’s Special Condition 3 are included in the contract.

Exempt supply

The following supplies are exempt (s 94(2)):

  • Undeveloped land.
  • Immovable goods (land or buildings) where the most recent development was more than five years before the supply.
  • A completed property occupied for at least 24 months since its most recent development, where a taxable supply has occurred since that development between unconnected persons.
  • A property completed more than five years before the supply, provided only “minor” work was carried out before the supply, i.e., work which does not adapt the property for materially altered use and the cost of which does not exceed 25% of the sale price.

Joint option for taxation

A person making an exempt supply of property, may, together with the acquirer of the property, make a joint option for taxation. In such a case, the acquirer is accountable for the VAT (s 94(5)-(6)).

Taxable supply

The supply of a developed property which is new and unused is taxable. Broadly, a property is new if it is developed in the five years prior to its disposal and unoccupied.

Capital good scheme

A property’s tax-life (adjustment period) is generally 20 years (10 years in the case of a refurbished property).

Deductible VAT is adjusted for each year (interval) of the property’s VAT life by comparing the VAT deducted on acquisition with the proportion of taxable use during the initial interval.

Depending on whether taxable use has increased or decreased, the VAT deduction for that interval will decrease or increase.

Where a person with full VAT recovery sells a property, but did not reclaim VAT on the acquisition of the property, he can get a full VAT credit for the unclaimed VAT, scaled back in accordance with the number of years elapsed since the property was acquired.

A property owner must keep a capital good record for each capital good (s 64).