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Supply of property

  1. Overview
  2. When is a property supplied in the course of business?
  3. Is a supply of property taxable?
  4. What does developed mean?
  5. When is a property completed for VAT purposes?
  6. What does 'occupied' mean for VAT and property?
  7. When is the supply of a property exempt?
  8. VAT treatment of options, easements and rights of way

What does developed mean?

Development in relation to land is defined as:

  • the construction, demolition, extension, alteration or reconstruction of any building on the land
  • or
  • the carrying out of any engineering or other operation in, on, over or under the land to adapt it for materially altered use.

Development, other than minor development (which is covered under the next heading), essentially makes a property new for Value-Added Tax (VAT) purposes. For example, where an undeveloped, or old, property is developed, the property is considered new for VAT purposes following the completion of that development.

Land is regarded as developed when:

  • a new building is constructed
  • an existing building is extended, altered or reconstructed
  • an existing building is demolished
  • work which adapts the land for materially altered use is carried out. Work which is not designed to make a material alteration in the use to which land is put is not development. Therefore, no account is taken of fencing, land drainage, laying of roads for agricultural purposes and so on.

Work on maintenance and repairs do not constitute development. The fact that planning permission had been obtained for development does not, of itself, constitute development for VAT purposes.

  • Example 1

    Farmer A owns a two-acre undeveloped field. In 2009, she spent €50,000 (incl. VAT) on agricultural works adding an access road to get to the field, fencing the entire field and adding a drainage system. She used the field for agricultural purposes.

    In 2010, she sold the field to farmer B. Although farmer A has spent substantial money and has carried out engineering works on the land, the work did not materially alter the land as it was a farm before and still a farm after.

    The sale is exempt from VAT as the field is not developed.

  • Example 2

    Farmer B owned a four acre undeveloped field. In 2010, he laid sewer pipes under the land and built a road that traverses the land from one side of the field to the other. The value of this development is €10,000.

    Farmer B then sold the land in four one-acre plots. The sale of each of these plots is subject to VAT (for a period of 20 years from when the development is completed) because the development work has materially altered the land (from a farm to building land, serviced site).

What is minor development in relation to a property?

Minor development is a level of development that does not make a building new. It can be described as development on a building that does not (and is not intended to) adapt the building for a materially altered use, provided that the cost of such development does not exceed 25% of the consideration for the supply of the building.

If a sale takes place within five years of the completion of a development, and the development is considered as minor development, then the sale will be exempt from VAT.

Note: There can be confusion between the concept of minor development and the Capital Goods Scheme (CGS) concept of refurbishment. It may be helpful to consider that minor development is important only when you are trying to decide if a sale is taxable or exempt and where work has been carried out in the past five years on a previously completed building.

Refurbishment is a concept within the CGS. Whenever a person carries out a development on a previously completed building, this constitutes a refurbishment and the refurbishment is a capital good in its own right. Please refer to the index at the top of the page for the definition of a 'completed property' for VAT purposes. 

There can be several refurbishments for any one property; the adjustment period for each refurbishment is ten intervals, the first of which begins when that refurbishment is completed. The fact that the development work may or may not have been minor is not relevant to its classification as a refurbishment.

What does materially altered use mean?

In determining whether a building has been materially altered, it is necessary to look at what the building was capable of being used for before and after the work was carried out. An indicative list of uses is:

  • residential
  • agricultural (for example, a barn)
  • commercial, professional (for example, retail, wholesale, use of office space for purpose of business and other similar uses)
  • derelict
  • non-business use (for example, a church or other similar uses).

Whenever a development converts a building from one of the headings above to another, it would be considered to have adapted the building for a materially altered use. However, development that converts a former clothes shop to a retail bank would not be considered to have adapted the building for a materially altered use. This is on the basis that a clothes shop and retail bank would come under the heading commercial and, or professional.

  • Example 3

    ABC Ltd has owned two identical warehouses, units X and Y, since 1988. In 2009, work is carried out on each of them that are completed at a cost equal to less than 25% of its sale price.

    Building not adapted for a materially altered use

    During 2009, ABC carries out work on upgrading unit X to a standard required for modern warehouses. After the work is complete, X is sold. The work has not materially altered the use of the building as it is still a warehouse. Even though the sale takes place within five years of the completion of a development, because the development did not adapt the property for a materially altered use, nor did it exceed 25% of the consideration for the sale, the development is considered as minor development and the sale is exempt, subject to a joint option to tax.

    Note: there are CGS implications for the 2009 works (a refurbishment) now that the sale is exempt.

    Building adapted for a materially altered use

    During 2009, ABC carries out separate work on unit Y. This involves the preliminary work required for turning the warehouse into an apartment block. Y is then sold to a property developer. The work has adapted the property for a materially altered use, changing it from a commercial building to a residential building. As the sale takes place within five years of the completion of a development, and the development is not considered as minor development because the building was adapted for a materially altered use, then the sale will be taxable under the normal rules. In contrast with the unit X example above, the 25% test becomes irrelevant in this example as the development work adapted the property for a materially altered use and made it new

  • Example 4

    It is accepted that the work completed in the following example has not adapted the building for materially altered use and now the 25% test needs to be considered.

    Mr A purchased a shop at a cost of €500,000 plus VAT of €67,500 in January 2010. The shop had last been developed in 1995 and needed some renovation. Mr A carried out development, which was completed on 1 June 2010 and cost €250,000.

    On 1 May 2013, he sold the shop for €1,250,000. Mr A must look back and examine the development as the sale takes place within five years of its completion. The work clearly did not adapt the building for materially altered use as it was still a shop after its completion. As the cost of the development did not exceed 25% of the consideration, the work done is considered minor development. The sale takes place within five years of the completion of a development, but the development is considered a minor development because the building was neither adapted for a materially altered use, nor did the cost of development exceed 25% of the sales. Consequently, the sale will be exempt, subject to a joint option to tax.

    Note: there are CGS implications for the 2010 works (a refurbishment) now that the sale is exempt.

    Development (exceeds 25% of sale price)

    Same scenario with Mr A above, but this time the work carried out was completed on 1 June at a cost of €400,000.

    Again, he sells the shop on 1 May 2013 for €1,250,000. The work did not adapt the building for a materially altered use, but it did cost more than 25% of the sale price and is not therefore considered as minor development. The property is developed and has been made new. The sale is taxable.

Next: When is a property completed for VAT purposes?

Published: 04 October 2017 Print this page

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