Supply of property

When is a property completed for VAT purposes?

Completed in the context of Value-Added Tax (VAT) on property means that the development of the property has reached the stage where the property can effectively be used for the purposes for which it was designed. In all cases, one essential requirement for completion is the connection of all of the utility services that will enable the property to be used for the purposes for which it was designed.

The physical state that the property is in when completed, and the degree of finishing and fitting that will have been carried out, will depend on its intended use and may vary from one type of building to another. Finishing and fitting work that is normally carried out by the person who will use the property, whether as owner or tenant, does not itself have to be completed for the property to have reached the point of being completed.

The five-year rule for taxable supplies of completed property begins from the date of completion.

Note: The two and five-year rules do not apply to sites. For example, if a person carries out engineering work on or over a site, this would constitute development for VAT purposes. The sale of this site is subject to VAT for a period of 20 years from when the development work is completed.

When is the supply of a completed property taxable?

A supply of a completed property in the course of business is taxable while the building is new. If development work is carried out to the property, not being minor development work, the property is again regarded as new from the date of completion of that development work.

A completed property is regarded as new for a maximum period of five years from completion. However, once the property has been disposed of to an unconnected person, the period during which the property is regarded as new is restricted to the period covering the first 24 months of occupation of the completed property.

It should be noted that if part of a building has been occupied for more than 24 months and part has not, then the consideration for sale is apportioned between the part of the building that is taxable and the part of the building that is exempt.

What is the position where a property is not completed at the time of supply?

The supply of a developed, but incomplete, property that is made in the course of business is taxable for 20 years from the date the development ceased. The two and five-year rules only apply once the property has been completed.

Are there any further exceptions to the two-year, five-year and 20-year rules?

Yes. Where the property is residential property, the supply by the person who developed it in the course of business (that is, a property developer), or by a person connected with the property developer, is always taxable. The two-year, five-year and 20-year rules do not apply to supplies of residential property by a property developer, builder.

Next: What does 'occupied' mean for VAT and property?