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Letting of property

  1. Overview
  2. How does a landlord opt to tax a letting?
  3. Can the landlord's option to tax a letting apply in all cases?
  4. VAT chargeable when an option to tax a letting is exercised
  5. What is the VAT treatment of premiums?
  6. When is an option to tax a letting terminated?
  7. What is the difference between a letting and a licence?

How does a landlord opt to tax a letting?

You are treated as exercising the landlord's option to tax when you claim the repayment of Value-Added Tax (VAT) incurred on the acquisition or development of the property.

When you let your property you must do one of the following to confirm your option to tax, either:

  • include a written provision for the taxation of the rent in the letting agreement
    or
  • issue a document to the tenant stating that VAT is chargeable on the letting.

Otherwise, the option to tax will be regarded as terminated.

On termination of the option, you will be subject to a Capital Goods Scheme (CGS) adjustment. It is not possible to backdate a landlord's option to tax.

  • Example 1

    Exercising the landlord's option to tax at development stage and at commencement of the letting

    Mr A develops a building in 2012 which is to be let to commercial tenants. He intends to opt to tax the lettings, and registers for VAT on the basis that he will make taxable lettings of the property. He claims a repayment in respect of the VAT charged by the builder, architects, and so on. Mr A is treated as having exercised the landlord's option to tax the letting.

    When he comes to let the building, Mr A can do one of two things. Firstly, include a provision in the letting agreement to the effect that the rents will be taxable, or issue a document to the tenant stating that the VAT is chargeable on the rents.

    Mr A then charges his tenants, VAT on the rents and accounts to Revenue for that tax.

  • Example 2

    Terminating a development-stage landlord's option to tax

    As in Example 1, Mr A intends to exercise the landlord's option to tax the rents from the property. However, when he lets the property, he neither includes a provision in the letting agreement to tax the rents nor issues a document to his tenant to that effect.

    Mr. A must make a Capital Goods Scheme (CGS) adjustment in the VAT period in which the letting is made, and repay the tax deducted in relation to the property (See Capital Goods Scheme (CGS) - other adjustments).

Can a landlord opt to tax the letting of a property where previous lettings were exempt? 

Yes. You can opt to tax such rents by either: 

  • agreeing in writing with the tenant (either an existing or new tenant) that the rents will be taxable
    or
  • by issuing a notice in writing to the tenant to this effect.  

With effect from the date of the agreement, notice, rents from that property will be taxable. You may be entitled to make a Capital Goods Scheme (CGS) adjustment in respect of VAT incurred on the acquisition or development of the property (see Capital Goods Scheme (CGS) - other adjustments).

A positive CGS adjustment does not apply where you exercise the landlord’s option to tax after 1 July 2008, in respect of a transitional property. This is because the provisions in the CGS that would give rise to such an adjustment are not applied for transitional properties. It is not possible to backdate a landlord's option to tax. 

  • Example 3

    Opting to tax a particular letting

    Ms B incurred €250,000 VAT on the acquisition of a property in 2010 and has been letting the property for a number of years. She did not claim input credit for this VAT. 

    In November 2014, the existing tenant leaves and in May 2015, Ms B succeeds in getting a new tenant. The new letting agreement includes a provision that the rents will be subject to VAT.

    Ms B will be required to account for VAT on the rents from the new tenant. She will be entitled to a VAT credit in respect of a Capital Goods Scheme (CGS) adjustment. This will be by reference to a proportion of the VAT incurred on the acquisition or development of the property. The input credit in this case will be €250,000 x 16/20 = €200,000 (see Capital Goods Scheme (CGS) - other adjustments).

Next: Can the landlord's option to tax a letting apply in all cases?

Published: 22 August 2017 Print this page

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