Supply of property

When is a property supplied in the course of business?

When property is supplied in the course of business, rather than in a non business capacity, Value-Added Tax (VAT) must be considered because:

  • VAT may be due on the supply
  • a Capital Goods Scheme (CGS) adjustment may be required
  • property may be transferred as part of a business.

For VAT purposes, business means any economic activity, whatever the purpose or results of that activity, and whether or not the business is subject to VAT.

A transaction entered into in a private capacity is not done in the course of business. For example, if you sell your private home, you are not doing so in the course of business, even if you are engaged in business.

A landlord or an investor who sells a property that was used or intended for letting is regarded as making a sale in the course of business.

It should be noted that if you engage in a single property transaction on a once-off basis, you may be acting in the course of business.

For example, if you construct or arrange for the construction of a residence on the site of an existing dwelling for subsequent sale, the sale would be regarded as acting in the course of business. This will apply even if the site was part of the grounds of your private residence.

What is meant by a supply of property for VAT purposes?

A supply of goods for VAT purposes is the transfer by agreement of ownership of the goods. In the case of property, a supply includes the transfer in substance of the right to dispose of property, whether as the owner or otherwise.

The term, in substance, is taken to mean not only the freehold of a property, but also other interests in the property that amount to effective ownership.

Such interests are referred to in this guide as freehold equivalent interests, or just freehold equivalent. For instance, many apartment owners do not hold the freehold of the property. For property law reasons they generally have a very long interest in the property, for instance a 99 or 999 year lease. Such an interest would be regarded as a freehold equivalent.

A transfer of a freehold is a supply of property. The creation of a very long lease (a freehold equivalent) is also a supply of property. This would be for a period of 99 years or more, where the consideration is a premium equal to the value of the property with a nominal rent payable annually.

While there may be situations where it is not 100% clear whether or not a supply is a supply of a freehold equivalent, in most cases there should be little or no difficulty.

As a general rule, the creation and assignment of standard commercial leases (5, 20 or 35 years) with rent reviews, and other similar situations, are unlikely to be subject to the provision.

However, the creation and assignment of much longer leases (99 to 999 years) for a large premium with peppercorn rent are, in most cases, likely to be subject to the provision.

Where there is any doubt in relation to a particular case, you should contact your Revenue office.

When does a supply of property take place for VAT purposes?

For a supply of property to take place it is not necessary that the legal title to the property has been transferred to the purchaser. It is sufficient that the purchaser has acquired, essentially, the right to dispose of the property.

The transfer of the right to dispose of property is usually regarded as taking place when the contract for sale of the property is completed. This includes circumstances where the property is transferred under a Compulsory Purchase Order. The transfer of the right to dispose of property also takes place at the point at which ownership of a property is vested in another party, such as, the Official Assignee in a bankruptcy case.  

In relation to a taxable supply of property, where a payment, or part payment, is made in advance of the supply of property taking place, a charge to tax arises in respect of that payment.

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