Is the sale of residential property by a developer subject to VAT at the zero rate?
26 May 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: Can a
transaction be zero-rated for VAT purposes if a VAT vendor buys residential
property from a property developer who is also a VAT vendor?
developer who is a registered VAT vendor enters into an agreement with the
buyer (also a VAT registered vendor and not a developer or property company as
such) to sell a residential property to the buyer. There is a lease agreement
in place between then tenant and the seller at the moment. The buyer is willing
to continue with the lease agreement with the tenant.
is no zero rate that applies to the supply of fixed property and particularly
the supply of residential property. From the facts we also don’t believe
that this is a supply of a going concern and that the rate of zero per cent
provided for in section 11(1)(e) can apply.
You state that
"there is a lease agreement in place between then tenant and the seller at the
moment”, but the requirement is that it must be a supply of an income-earning
activity. The current practice prevailing – see interpretation note 57 –
is as follows:
to sell a fixed property to the sole tenant does not constitute the disposal of
a going concern, as the income-earning activity (being the leasing activity) is
not sold to the purchaser. The purchaser obtains a capital asset without the
capacity to continue the leasing activity.”
You are correct
that the supply of a dwelling under an agreement for the letting and hiring
thereof will be an exempt supply. That would mean that the developer was
not carrying on an enterprise. It would be another reason why it is not
the supply of going concern.
understanding of the facts is wrong this guidance may not be appropriate and
you must then provide us with more detail to enable us to provide the guidance.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.