Letting of property

When is an option to tax a letting terminated?

An option to tax a letting is terminated if:

• you enter into an agreement in writing with the tenant that the rents will no longer be taxable
  or
• you issue a notice in writing to the tenant that the rents will no longer be taxable.

The termination date will be no earlier than the agreement date or the date of receipt of the notification by the tenant.

An option to tax rents will be terminated automatically if:

• you become connected with the tenant [1]
• the property becomes occupied by a person connected with you [1]
• the property is used, or to be used, for residential purposes
• you fail, having claimed the Value-Added Tax (VAT) on the acquisition or development of the property, to:
  • 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.

[1] The option to tax will not be terminated if the occupant is connected, but entitled to claim at least 90% of the tax chargeable on the rent.

What happens if an option to tax is terminated?

If the option is terminated during the adjustment period relating to the property, a Capital Goods Scheme (CGS) adjustment will be due (see Capital Goods Scheme (CGS) – other adjustments). The landlord must account to Revenue for the tax due as a result.

Next: What is the difference between a letting and a licence?