VAT Property Misc

Going Concern

The general exemption for the transfer of a business as a growing concern applies to transfers of freehold property. This includes the grant of long leaseholds which are equivalent to  freehold transfers.  Under the transfer as a going concern treatment, the purchaser succeeds to to the vendor’s position in all respects, including, for example under the Capital Goods Scheme.

Once the arrangement comprises, in substance, the transfer of an ongoing business as opposed to a collection of assets only, then the treatment apply.  The concept is broadly similar to that applicable to the Acquired Rights Directive in an employment context. The relief may apply to the transfer of a  business which comprises the letting of properties to tenant.

Inter-Group

The transfer of assets  between companies in a VAT group, is not subject to VAT.  The group must have elected for a treatment as a VAT group.  However, the exemption does not apply to property transfer.  Accordingly VAT must be charged, reclaimed et cetera.  The transaction may or may not be VAT neutral depending on the ability of the recipient to recover VAT.

Security

The transfer of an asset  by way of security upon the  creation of a mortgage or charge is not a vatable supply.  However, its  sale as part of enforcement is potentially subject to VAT .  See generally the section in relation to sales by liquidators mortgages and receivers.

Sale

A sale includes any transfer of an interest,  even if it is involuntary.  Accordingly, a compulsory acquisition either by a legislative vesting order or by way of a forced sale is subject to value added tax.

Option

The VAT treatment of an option depends on the circumstances.  Revenue regard the grant of an option, as potentially a supply of property for VAT purposes. An interest in the property is granted by the option.  The position depends on the status of the underlying property. This can lead to complication where the VAT status of the property has changed over time.  When the option is exercised, the VAT treatment will be by reference of the position at the date of exercise of the option.

Deposit

If, on a sale of property, the deposit is paid to the vendor (and not held as stakeholder / Security), the vendor must account for VAT on the basis that there has been a supply of a part interest in the property. If the deposit has is refunded because the sale does not proceed, then the VAT paid may be reclaimed. A deposit paid as security is arguably exempt on the basis that it is a security only, even if it is received by the vendor. Where it is received by the solicitor as  stakeholder, then there is no supply.

Converted

In accordance with general principles, if a developed property, on which VAT has been recovered is converted to use for a private or any other non-vatable purpose, then the VAT  be repaid. Where a developer takes property from use in a development trade, to use as for private purpose, such as an investment,  a VAT charge will apply on the costs, notwithstanding that there is no change of ownership.

Gift

A gift may be a supply, even if there is no consideration. Where a person who is entitled to recover VAT makes a gift, he must charge VAT to the recipient or pay it himself. If the recipient is VAT registered, then he may be entitled to recover VAT for which the donor is accountabl. This  will usually be the acquisition and development costs.

Supply Rate & Place

The general rate of VAT on sales of property is 13.5 percent.  The supply is deemed to take place in the State in which the property is situated, irrespective of the place of establishment or residence of the various party.  The vatable supply will generally take place at completion and in accordance with standard contract provision.  See above in relation to payment of and forfeiture of deposits.

Insolvency Officers

The treatment of the sales of the property by liquidators and receivers is broadly similar, notwithstanding that their legal nature differ significantly. A disposal of property undertaken by a receiver is generally deemed to be undertaken in the course of business. The receiver must register for VAT and account to the Revenue for it. In the case of a receiver, the receiver is usually deemed to be agent of the company.

The liquidator is an officer who controls the company, in the same way as the directors, who has an obligation to wind up its affairs. Accordingly, the supplies are made by the company and are deemed to be in the course of a business, notwithstanding that there is usually a  winding down of the company’s business.

The receiver or liquidator may opt to tax on behalf of the company. They not be connected with the company. In the case of residential property, the sale is subject to VAT if the company  in receivership has developed the property or if he is connected to the developer.

Receiver

If the receiver sells property  which is exempt from VAT and the option to tax is not exercised there may be claw back of VAT in the usual way under the Capital Goods Scheme.  The Revenue take the view that this is a receiver’s responsibility as it is arises in relation to the disposal. The receiver is liable to account for a VAT on rents received in the same manner as the borrower/mortgagor.

Revenue has indicated in briefings, that in the case of new exempt letting which gives rise to a claw back under the capital goods scheme the liability is a responsibility of the borrower and not the receiver.  It does not  cover where the receiver has terminated the option to tax.

Revenue takes the view that where a pre- July 2008 lease is surrendered, the receiver may be required to account for VAT on that surrender.  Where on sale, the property the borrower’s waiver of exemption is cancelled, Revenue has taken the view that the cancellation is for the account of the borrower and not the receiver.

NAMA

See separate chapters on the establishment origin and rationale of the National Asset Management Agency.  Where there is a transfer of property to a NAMA such as on  enforcement, the transfer is commonly exempted from VAT, as either an old property or second-hand property or building.

NAMA is deemed to exercise the option to tax in relation to the same and a self supply for VAT purposes arises on the transfer.  If the transfer would be exempt on other grounds, NAMA is not entitled to opt to tax.

If the transfer to NAMA would be exempt, due to not being developed in the last 20 years, NAMA may choose whether to opt for tax or not. The purpose of the rules is to ensure as far as possible that VAT is not a cost to NAMA. Where NAMA cannot opt to tax, no capital goods scheme claw back arises.

Provision is made to ensure that no capital goods scheme claw back arises and transfers of exempt freehold estates created before the new VAT rules  commenced.

Where a NAMA is obliged to opt to tax, the borrower is not made subject to a capital goods scheme adjustment.

A sale of property by NAMA is subject to the normal rules. Where NAMA sells a property which has not been developed again, it is exempt from VAT.  Purchasers must be required to opt to tax in order to avoid a VAT charge by reason of  claw back. NAMA will redeem to acquire the properties at the base cost at the time of acquisition.

Where a developer of residential property or a connected person, transfers a property to NAMA, NAMA should be connected with the developer.  NAMA must charge VAT on future sales of residential properties, regardless of whether or not the property is more than five years old.