Changes to the 2008 VAT on property legislation were implemented, at the last minute, by Finance Bill 2009. These amendments, which are retrospective in nature, may give a nasty surprise to landlords who sold investment properties since 1 July 2008 and most certainly need to be considered by all landlords who propose to sell properties in the future.
In brief, these changes only apply to properties to which a waiver of exemption applied. Where a waiver was in place, the VAT on the purchase and development costs of a property were reclaimable by the landlord and VAT then had to be accounted for in respect of rent received to effectively repay Revenue for the VAT refund paid to the landlord. A waiver could always be cancelled by the landlord where he paid Revenue any shortfall of VAT between the VAT reclaimed initially by him and the VAT paid by him to Revenue in relation to rental income to ensure Revenue were not “out of pocket”.
However, if the property was sold since 1 July 2008 without the waiver being cancelled, some landlords escaped this VAT clawback by effectively deferring it indefinitely. The new rules set out the VAT treatment, in that regard, including the following scenario:
- Landlord becomes member of a group after 1 July 2008,
- Leases between landlords and connected tenants,
- Property sold after cancellation of the waiver and
- Automatic cancellation of a waiver on 3 June 2009.
Anyone who believes that the new rules may be relevant should check them carefully to ensure that he pays any VAT now due immediately and avoids unnecessary late payment interest charges.