Supply of property

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.

In relation to development:

  • Maintenance and repair work does not constitute development.
  • The fact that planning permission had been obtained for development does not, of itself, constitute development for VAT purposes.
  • A supply of property may take place on foot of a compulsory purchase order. In such cases, the acquiring body may, under its statutory powers, carry out development work during the period between the date the notice to treat has issued in respect of that property, and the date the supply of property takes place. Revenue will not, in general, consider the supply to be taxable solely by virtue of this development work taking place.

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.

Next: When is a property completed for VAT purposes?