Supply of property
To come within the charge to Value-Added Tax (VAT), the property must have been:
- supplied for consideration in the course of business.
The supply of property is taxable only while the property is considered new. The following determines when a property is new:
- The first supply of a completed property within five years of its completion is subject to VAT (known as the five-year rule).
- The second and subsequent supply of a completed property within five years of its completion is subject to VAT if it has not been occupied for 24 months in aggregate (known as the two-year rule).
- Any supply of a developed, but incomplete, property within 20 years of when the development ceased (known as the 20-year rule).
The following supplies of property are also taxable:
- Generally, all sales of old properties are exempt from VAT. However, in certain circumstances, the person supplying such a property and the purchaser may jointly opt to have the supply subject to VAT.
- Where a property is sold and, in connection with that sale, there is a contract between the purchaser and another person to develop the property, the sale is subject to VAT.
- Where a residential property is developed by a person in the course of a business of developing immovable goods, the sale of the property by that person or a person connected with that person is always taxable. This would not apply where the residential property is built in the course of a business other than a development business, such as the business of letting property. Whether or not a person is engaged in the business of developing immovable goods is a matter of fact in each case to be determined on the basis of objective evidence.
Supply in connection with an agreement to develop property
Supplies of property made in connection with an agreement to develop the property are always taxable, whether or not the person making the supply does so in the course of business.
For this provision to apply, the purchaser of the property, or a person connected with the purchaser, must enter into an agreement with a taxable person (usually a developer and, or a builder) to develop the property.
The supply of the property, and the entering into an agreement to develop the property, must be connected in some way.
For example, if a farmer sells a site (where the sale of that site would not otherwise be liable to VAT) to a private individual who intends to construct a dwelling on the site, the farmer would not be making a taxable supply under this provision.
However, where a landowner and developer jointly arrange for the development of a piece of land on the basis that the landowner will sell plots to various people who will be required to enter into an agreement with the developer to construct a house on the plot, the sale of the plots and the agreement to develop are considered as connected. In this situation, the sale of the land is subject to VAT.
Mr A owns a field that has not been developed.
B Ltd is a property developer. Ms C signs a contract with Mr A to buy the field and a building agreement with B Ltd for the construction of a house on that site. The contract that Ms C has with Mr A is contingent on her performing her contract with B Ltd.
The sale of the site by Mr A to Ms C is taxable as it is in connection with an agreement to carry out a development.
What is the taxable amount on the supply of property?
Where the supply of property is taxable, the taxable amount is the full amount of the consideration payable for the supply.
Consideration can be in cash or it can consist of the value of services to be performed by the purchaser. Generally, the consideration is the amount payable under the contract.
In certain circumstances, the market value of the property may be substituted for the amount shown in the contract.
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