Vat on property is something that is easy to overlook if you are buying commercial property. It may also apply to residential property, depending on the circumstances, so you need to be careful and obtain expert tax advice if there is any doubt in your mind.
The current situation with regard to VAT and property is the regime in place since 2008.
Since then most property transactions are exempt but there are important exceptions where the option to tax the supply of the property is exercised in certain situations.
When we refer to ‘property’, remember, we are also referring to leasehold property in addition to freehold interests.
Commercial property, new buildings
Vat is chargeable at 13.5% on a new building. A ‘new building’ is
- The first supply of a completed property within 5 years of completion
- The second and subsequent supply of a property, if the supply is made within five years of completion, and the building has been occupied for less than two years.
Commercial property, second hand buildings
Properties developed after 1st July, 2008 are exempt but the vendor and purchaser can jointly opt to tax.
If this option is not exercised the vendor/developer will face a clawback of a proportion of the vat which he has already reclaimed from Revenue on the acquisition or redevelopment of the property. This clawback will be calculated on the vat life of the property.
After 1st July, 2008 all lettings are exempt from vat.
The landlord can, however, elect to tax and charge vat on the rent at 21%. If he does not opt to tax he will face a clawback based on the vat he has already claimed on the development and/or acquisition of the property.
This option to tax does not arise if the landlord himself or a person connected to him occupies the building.
Assignments of leases
The assignment of surrender of a long lease will be chargeable to vat if the tenant who is the assignor was entitled to reclaim vat on acquiring the original lease or the development of the property.
The first supply of new residential property is liable to vat.
This page from the Revenue Commissioners is worth reading closely if you are concerned about vat on property. You are strongly advised to obtain tax advice from an accountant or tax consultant if you suspect that the vat position is not clear in either your supply or purchase of property.