Revenue Note for Guidance

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Revenue Note for Guidance

94. Supplies of immovable goods (new rules)

Summary

This section contains rules on how property transactions that take place on or after 1 July 2008 are treated for VAT purposes. In particular, it provides for the exemption of certain supplies of immovable goods and a joint option for taxation of those exempt supplies. Where the joint option is exercised, the purchaser accounts for VAT on the sale on a reverse charge basis.

The supply of houses and apartments for residential purposes (whether by the sale of the freehold or by way of a very long lease (a “freehold equivalent interest”) is taxable. The first sale of houses and apartments by property developers and builders is taxable under the post-1 July 2008 rules.

The supply of commercial buildings – whether by the sale of the freehold or the freehold equivalent interest – is taxable only while the building is considered “new”. For this purpose, a building is regarded as “new” for a period of up to 5 years following completion. The first supply of a building within 5 years after completion is always taxable. Subsequent supplies within 5 years after completion are also taxable except where the building has been occupied for two years or more at the time of supply. An existing building that is substantially refurbished or is adapted for materially altered purposes is considered “new” following such work, and sales of those buildings are subject to the rules for sales of new buildings.

Land that is sold in connection with a contract to develop it is taxable; the VAT treatment of undeveloped land (e.g. farm land) was not affected by the new rules that apply from 1 July 2008.

Details

(1) The terms “completed” and “occupied” are defined for the purposes of the section. “Development” is defined in section 2(1). These are all key concepts, as taxation or exemption of a supply of property is determined essentially on the basis of whether the property is developed, the time the development was completed and the length of time the property has been occupied.

  • A property is “developed” when a new building is constructed, or when an existing building is reconstructed, etc. Adapting a building to materially alter its use (for example, to change it from a warehouse to an apartment block) also constitutes development. Development, other than minor development, makes a property “new” for VAT purposes.
  • “Completion” in the context of property, means the property is developed to the stage where it can be used for the purposes it was designed for, with water, electricity and other utility services connected, etc. The 5-year rule (see subsection (2)) kicks in from the date of completion.
  • “Occupation” of a property means the property is physically in use (in accordance with the planning permission that was granted). The 2-year rule (see subsection (2)) kicks in from the date of first occupation.

(2) Subsection (2) contains the rules for exempting the supply of immovable goods (land or property) from VAT as follows:

  • (2)(a) Paragraph (a) provides that the supply is exempt if the land or property was not developed in the 20 years before the supply.
  • (2)(b) Paragraph (b) exempts a supply of property where the most recent development of the property has been completed more than 5 years beforehand.
  • (2)(c) Paragraph (c) exempts a supply of a completed property that has been occupied for at least 2 years since its most recent development, if a previous taxable supply of the property between unconnected parties (whether taxable or not) had taken place since that development.
  • (2)(d) Paragraph (d) exempts a supply of a property that was completed more than 5 years before the supply, but further “minor” development on that property is carried out since then. The supply will be exempt if that further development does not adapt the property for materially altered use and the cost of the development does not exceed 25% of the sale price. If the property is either materially altered or the cost exceeds 25% of the sale price, then the property is taxable.
  • (2)(e) Paragraph (e) has a similar provision to deal with a supply of property that is subject to “minor” development during the 2-year occupation period.

The rules for exemption in this subsection are subject to anti-avoidance rules prohibiting exemption (subsection (3)), rules allowing options to tax (subsections (5) and (7)), rules for residential property (subsection (8)) and the transitional rules that impose a tax charge where input deductibility on acquisition was allowed (section 95(7)(a))

(3) The fact that property is exempt if it has not been developed could lead to avoidance opportunities. Subsection (3) is an anti-avoidance rule. It prevents the application of an exemption to the supply of a site that is to be developed, where the site is sold in connection with an agreement to develop that site.

Example:

Landowner A, property developer B and purchaser C have a contractual agreement under which C has a contact with A to buy the land and a contract with B to construct a house on it. C’s contract with A is contingent on the performance of the contract with B. This is a taxable supply.

(4) The registration thresholds (section 6(1)) do not apply to property transactions.

(5) An option to tax a supply that is exempt in accordance with subsection (2) of this section or in accordance with the transitional rules in section 95 (see section 95(3) and 95(7)(b)) is provided.

  • Both parties to the transaction must agree to opt to tax.
  • The option may be exercised no later than the 15th day of the month following the month in which the supply occurs.
  • The supplier and the purchaser must both be in business in the State.
  • The agreement must be in writing and is called a “joint option for taxation”.

(6) Where the joint option to tax the supply is exercised in accordance with subsection (5), then, the tax is accounted for by the purchaser on a reverse charge basis.

  • Paragraph (a) provides that the purchaser will be the accountable person who is liable for the tax.
  • Paragraph (b) provides that the seller will not be accountable or liable.

(7) A joint option for taxation on sales of exempt properties in situations where there is a “forced sale” is also available. This allows the finance company that repossessed the property and the person who is purchasing the property to jointly opt to tax the sale of the property. The VAT treatment of forced sales (excluding residential property which has been used as a principal private residence by an individual on which there are no VAT implications) is that the financial institution is responsible for paying the VAT to Revenue from the proceeds of the sale.

In the case of exempt properties, there is a claw-back of VAT based on the VAT deducted by the defaulter. The claw-back is provided for under the capital goods scheme (CGS) and the seller (for example, financial institution, examiner, receiver or liquidator) is liable to pay this claw-back. However, the seller may not be in possession of the necessary information about the defaulter’s VAT affairs to calculate the amount due under the claw-back. The information required relates to the amount of VAT that was deducted by the defaulter in relation to the acquisition and development of the property and the number of years that have elapsed since the property was acquired by the defaulter. This potential problem is circumvented by the availability of a joint option to tax the sale, which means the CGS claw-back is avoided.

  • (7)(a) Paragraph (a) contains definitions.
  • (7)(b) Paragraph (b) allows a joint option for taxation between the vendor and the purchaser, where the vendor is a liquidator, receiver or other person covered by section 22(3) , and the purchaser is a taxable person.
  • (7)(c) Paragraph (c) provides that where paragraph (b) applies, the purchaser is liable for the tax and neither the vendor nor the owner are liable for that tax; and the vendor does not have to register for VAT or make a VAT return in respect of that transaction.
  • (7)(d) Paragraph (d) provides that an option for taxation cannot be exercised where the purchaser is connected to either the vendor or the owner.

(8) In general, residential properties are not covered by the exemption given in subsection (2). In other words, the 5-year and 2-year rules do not apply to supplies of dwellings by a builder/developer. This subsection sets out the details.

(8)(a) Paragraph (a) contains definitions.

(8)(b) The first supply of residential property by a person in the business of developing property (and who was entitled to VAT deductibility), or by a person connected to that person, is not an exempt transaction.

(8)(c) Where these properties are let prior to the first supply, the adjustment under the capital goods scheme is the annual adjustment as the letting is treated as a temporary arrangement that does not take the first supply of the property out of the VAT net.

(8)(d) NAMA or a NAMA entity (also see notes on section 16(1) for NAMA entity) is effectively treated in the same manner as property developers for the purposes of activities in relation to residential property.

(9) An option to tax an otherwise exempt transaction is allowed to NAMA or a NAMA entity in certain circumstances.

  • Paragraph (a) gives the option to the recipient and provides that the “joint option” stipulation doesn’t apply.
  • Paragraph (b) states that the provision does not extend to exemptions under the old rules or under the transitional rules.
  • Paragraph (c) provides that the option for taxation available to NAMA or a NAMA entity is deemed to have been exercised in most cases.

Relevant Date: Finance Act 2019