Revenue E-Brief

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Revenue E-Brief Issue 20, 2nd April 2007

VAT treatment of short-term letting of residential property

The purpose of this e-Brief is to alert practitioners to the discontinuance of the scheme for waivers of exemption in respect of short term letting of residential property provided for in the Finance Act, 2007.

The change in treatment applies to:

  • waivers applied for on or after the date of the passing of the Act, and
  • the extension of existing waivers to lettings of residential properties acquired or developed on or after the date of the passing of the Act.

Waivers in respect of the letting of non-residential properties, for example factories or offices, are not affected by this change.

With effect from the date of the passing of the Act, a person will not be entitled to waive his/her exemption from VAT in respect of residential property, and where existing waivers are already in place they will not extend to residential property acquired or developed on or after that date.

For this purpose a property is considered to be ‘acquired’ when a person enters into a binding contract in writing for the acquisition of a property or an interest in a property or for the construction of a property. A property is considered to be ‘developed’ when an application for planning permission in respect of the development of a house, apartment or other such establishment is received by a planning authority.

The following examples illustrate a number of questions that have arisen regarding the new provision:

Example 1

A pays a booking deposit in relation to a new house in January 2007. She enters into a binding site purchase agreement and a building agreement in May 2007 in relation to the purchase of the house. Application for planning permission for the house in question was lodged by the builder in August 2006. As the acquisition of the house by A takes place on or after the passing of the Finance Act 2007 she cannot waive her exemption in respect of the letting of the house and cannot extend an existing waiver of exemption to the letting of this house.

Example 2

B acquires a site for a block of apartments in August 2006 and applies for planning permission for construction of the apartments. B intends to let the apartments on a short-term basis. He engages a builder to construct the apartments. B is considered to have developed the apartments. A planning application was lodged with the planning authorities prior to the passing of the Finance Act 2007. B can extend any existing waiver of exemption to this development. However, if he does not have a waiver in place prior to the date of the passing of the Finance Act 2007, he cannot now waive his exemption in respect of those lettings.

Example 3

C has residential lettings prior to the passing of the Finance Act 2007 but no waiver in place. She acquires a commercial property for letting on or after the passing of the Act. She wishes to waive her exemption in respect of the commercial lettings but wonders whether this waiver will extend to her residential lettings. The answer is no, because she is precluded from waiving exemption in respect of residential lettings on or after the passing of the Finance Act by virtue of the new section 7(1A) of the Value Added Tax Act which overrides the provision in section 7(1) (a) of the Act.

Example 4

D created a long lease in a holiday home in 1997. The income tax life of the property is coming to an end and the operator, a management company, is surrendering the lease to the landlord. The landlord incurs a liability on the surrender and, because he wishes to recover the VAT chargeable, he wishes to waive his exemption and rent the house to residential tenants (i.e. not holiday lettings). The surrender does not take place until on or after the date of the passing of the Finance Act 2007. The position again is that he cannot waive his exemption as there can be no new waivers in relation to residential lettings on or after the date of the passing of the Finance Act.

Residential property means all or part of a house, apartment or other similar establishment, to the extent that those goods are used or to be used for residential purposes, including any such letting-

  • governed by the Residential Tenancies Act 2004;
  • governed by the Housing (Rent Books) Regulations 2003 (S.I. No 146 of 1993);
  • governed by section 10 of the Housing Act 1988;
  • of a dwelling to which Part II of the Housing (Private Rented Dwellings) Act 1982 applies;
  • of accommodation which is provided as a temporary dwelling for emergency residential purposes.