Assume the transaction mentioned in the example under How to account for VAT on legacy leases was a surrender of the lease to Mr X (the landlord) and that Mr X reclaimed the VAT chargeable as he intended to opt to tax the next letting.
In May 2013, Mr. X (the landlord) sold the freehold without having carried out development.
The sale was exempt under the normal rules because the property has not been developed within the five years prior to the sale.
Mr X’s liability in respect of the CGS adjustment relating to the exempt sale was as follows:
(€450,000 multiplied by 8) divided by 9 equals €400,000
This reflects that seven full and one partial interval remained of the nine intervals applying at the time of the surrender. Mr X would repay €400,000 as an adjustment of the VAT reclaimed.
The same adjustment would have been required if, instead of selling the property, Mr X had cancelled his landlord's option to tax or created a new letting without exercising the option.