VAT on Property – Nama property sales by auction: Look out for the health warning!

Friday, March 29, 2013

by Nick Ryan

In the current property market there a number of bargains to be had but, in some cases, these bargains come with a nasty sting in the tail as the buyer is often unknowingly acquiring a property with a VAT time bomb attached and which, could result in a negative investment.
Over the recent months I have been asked to advise on the VAT issues for a number of property purchases where the property is sold under a receiver. I have noticed that some of the Forms of Tender and Conditions of Sale contracts have already confirmed the VAT treatment to be applied and included an amended VAT Special Conditions striking out all clauses other than clauses 3.1, 3.2.1, 3.3.1 – which confirms the sale under a joint option to tax and, 3.11.
I recall when presenting on the introduction of the new rules for VAT and property some of the raised eyebrows in the room when I mentioned that the application of the joint option to tax is akin to a “deal-maker/deal-breaker” clause in that it offers the purchaser an opportunity to further negotiate a price where it is clear that the vendor wishes to conduct the sale under a joint option to tax, clearly signaling that they have a VAT liability arising form the sale if treated otherwise. Now nearly five years down the line the eyebrows are furrowed and purchasers are met by a defiant wall of sale by joint option or no sale at all! The joint option to tax for receiver sales has become a simple option to apply in order to protect the receiver and avoid the need to locate the VAT history of a property.
Under the new rules one would expect an increasing number of properties being sold to be deemed to be “old” and therefore exempt for VAT purposes. If sold as such and where the owner has deducted VAT in connection with the acquisition or development of the property then there would be a requirement for a claw back adjustment to be made based on the VAT deducted and the number of intervals remaining in the life of the property. Often, and where these properties were transacted in the boom years, this can result in a significant VAT payment to Revenue. By applying the joint option the receiver avoids the consideration of any requirement for a claw adjustment of VAT where the sale of the property is exempt.
What though does it provide for the buyer?
In simple terms by accepting the joint option to tax the buyer is agreeing to bring the property back into the VAT net and create a new 20 year VAT life. This is fine where the buyer is purchasing for their own taxable use with no intention to sell or let but the position changes where it is an investment purchase. For investment purchases a number of factors have to considered if the sale is made under a joint option to tax including;
– If I sell the property will I find a buyer that will agree to a joint option to tax, if not, how much will the VAT adjustment required impact on my investment?
– Where I want to let the property will tenants be easy to find if I have to charge VAT on the rent?
– If I intend to put the property to an exempt use then do I have the cash available for the VAT bill?
For the receiver the option to tax is the easy option that provided for a VAT neutral transaction and maximises the potential yield on the sale. For the purchaser, the option to tax can be their worst nightmare!
The VAT Practice provided a fixed fee arrangement for advising on property transactions. Should you have any questions on the above, war stories or require assistance with a VAT transaction then please contact Nicholas Ryan on 0238838181 or by email,

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