The current VAT on property regime was introduced in July 2008 and can be reasonably complex to navigate. That said the brief summary below sets out the main principles of the regime to allow a general understanding of how it operates.
In general VAT is only chargeable on “new” property. A new property is one that has been developed in the previous five years. Where a new property is purchased the purchaser will be entitled to reclaim the VAT paid in circumstances where the property is being put to a vatable use. A vatable use is to be used in a trade or rented where VAT is charged on the rent. Generally residential leases are not subject to VAT and consequently the property cannot be put to a vatable use. Therefore, typically, the Revenue will not allow a VAT reclaim on residential property unless it is being operated as a trade – B&B.
In general VAT issues are more likely to arise with commercial property transactions.
In circumstances where the property is not considered “new” then the sale of the property is exempt from VAT. While that allows for a sale to proceed without a VAT charge, the seller should understand that they are exposed for any VAT that may have been reclaimed when they purchased the property previously. If there is a VAT liability arising on them in respect of an earlier purchase the seller may elect to enter into a joint option to tax the sale, whereby it is agreed with the purchaser that the sale is subject to VAT.
The capital goods scheme is a key feature of the VAT on property regime and it provides that each property which is subject to VAT has a vatable life of 20 years. In some circumstances on the disposal of a property a new owner may assume the remaining capital good record of the seller.
In general, as a residential landlord cannot opt to tax a lease where the property is occupied for residential purposes, VAT on property doesn’t tend to have significant implications for residential landlords. However, in circumstances where one is dealing with a commercial property or property that has a VAT history, it is important to get precise advise in respect of any transactions that are being considered.
Information has been provided by Cathal Lawlor of Lawlor & Partners. If you want to arrange a consultation with Cathal, please contact 01 872 5255.