Munster’s first independent VAT consultancy practice providing specialist VAT and Indirect tax advisory, assurance and interim management support services to owner managed businesses, small & medium enterprises, accountants and legal practices.

VAT and Property : Disposals and acquisitions – they are certainly NOT straightforward

Friday, May 29, 2015

by Nick Ryan

Over the last eighteen months or so there has been a considerable upsurge in property transactions and The VAT Practice has encountered and advised on a wide range of transactions which have continued to highlight issues with the practical application of the changes introduced in July 2008.
Recently we have noticed how Revenue’s interest is developing in these transactions as they become aware that significant VAT liabilities can be achieved with limited effort. We have also noticed that Revenue are taking a hard line where liabilities are identified post completion, or from an historical event, and look to impose higher penalty sanctions were possible knowing that the tax payer can only challenge this through the Courts thereby incurring a further cost.
Some of the transaction issues we are encountering are:
• Sale of a property with a waiver of exemption in place. In many cases the position regarding the requirement to cancel the waiver either in advance of the sale or, when the sale is completed is being forgotten. In most cases the waiver cancellation is providing for a significant VAT liability and there is a misunderstanding that this waiver cancellation is negated under a joint option to tax.In some cases the waiver cancellation calculation is producing a significant VAT liability that far exceeds the value of the property thereby imploding the sale. I am not convinced that this circumstance was envisaged when the new rules were being prepared and perhaps Revenue should consider reforming the legislation to counter these problems.
• Buyer is not an accountable person. Many sales by auction involve investors from outside of the State or are private buyers looking to acquire a property to use for private purposes. Unfortunately the blanket approach by receivers to invoke the join option to tax is creating problems . Where the person is not an accountable person and, will not be one even when they acquire the property prevents the use of the joint option to tax. Receivers are not reading this as an issue and sales are agreed at auction under the understanding that the joint option to tax will apply when it clearly cannot. The VAT Practice was involved in such a case where the Receiver had forced the sale through under a joint option to tax even though our client was not an accountable person and intended using the property for their own personal use. As the joint option to tax failed and Revenue concurred with our view that it could not apply, the receiver was left with a significant VAT liability to be met out of the proceeds of the sale.
• Portfolio sales. Where a number of properties and sites are sold on block there has to be a need to identify the VAT position for each element and often this is not occurring where the sale is made under auction. Often these sales are using one Contract for Sale and there are failures in the insertion of the appropriate clauses under VAT Special Conditions 3 to cover the VAT treatment applicable to each unit. One sale we were involved in recently following our review resulted in a reduction in the VAT cost to the purchaser of circa €40,000 and enabled them to understand which units were in the VAT net and which were clearly not thus preventing future VAT errors.
• Transfer of Business. Following Revenue’s announcement on the application of TOB on property transactions, TOB has become extremely popular though, in some cases, it is hard to accept the basis for its application. The issue on the letting of the property needs more clarity, should a property that has been vacant for 10 years and let prior to that for 6 months be considered to be a property letting business and therefore subject TOB. Also, what if there is no history of the property available and the property is “old”. How can the purchaser “step into the shoes” of the vendor.
These are just some of the areas were issues are frequently being identified and where the VAT position is less than straightforward. What is becoming clearer is that if you follow the rules, endeavour to assess the VAT history and complete the processes then the level of risk of Revenue enquiry and VAT liabilities is significantly reduced.
The VAT Practice provides VAT advice on property transactions covering assistance in determining the VAT history of the property, clarification on the VAT treatment to be applied, identification of any VAT liabilities and advice on management of same and, assistance with completion of the Pre Contract VAT Enquiries form and Special Conditions 3 VAT clauses. For assistance with an property transaction or, more information on our services then please contact Nicholas Ryan at advice@thevatpractice.ie or, +353238838181.

Tags: joint option to tax, Receivers and VAT, VAT and property, VAT and property and The VAT Practice, VAT and property developers, VAT and sales of property, VAT and transfer of business, VAT blog, VAT News, Waiver of exemption