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Posted on: Friday, February 01, 2013

Before attempting a question on VAT on Property you should make sure you understand the definition of each term.

For example “completed property” which means property that can be used for the purpose for which it was designed.

Is it essential to understand what is meant by a “New Property” so that you can decide whether or not the disposal is liable to VAT.

A “New Property” can be defined as follows:

  • The first supply of a completed property within five years of its completion or development (5 Year Rule).
  • Any subsequent supply of a property that occurs within five years of its completion if it takes place within two years of occupation and if a previous sale was subject to VAT and took place between unconnected parties (2 Year Rule).

So,  what does that really mean?

Example 1:
Adam develops a site which is completed in September 2008.  He then sells the property  to Barry in December 2008 who occupies it immediately for the purposes of his accountancy business.

This is a taxable supply because the first supply was made within five years of completion of the property therefore it is liable to VAT.

Example 2: Barry occupies the premises for three and a half years after which time he decides to move to a bigger premises.  In June 2012 he sells the property on to Conor, who runs an engineering firm from the property.

The sale by Barry to Conor is within five years of completion (i.e. September 2008) but not within two years of occupation as a result the sale is not subject to VAT.



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