The Joint Option to Tax: The press gang approach to selling property

Wednesday, February 26, 2014

by Nick Ryan

Finance (No 2) Act 2013 confirmed changes to VAT and property and sales of such under a receiver or liquidator. These changes confirm that the receiver is now liable to any VAT liabilities arising, including deductibility adjustments under the capital goods scheme, for assets under their control.
It is doubtful whether will we now see a shift in attitude by receivers in ensuring they have, as best as they can, a VAT history of the property in order to determine the VAT treatment for the sale. By confirming this position on where any liabilities for VAT rest Revenue has, through these changes, further accelerated the adoption by receivers in applying a press gang approach to disposals of properties, particularly for transitional properties, by pushing the “sale by Joint Option to Tax” button.
Under current legislation a sale of property by a receiver should not be treated any differently and the same processes should be followed. Unfortunately in reality this does not happen for a number of reasons. The key problem is the failure in the process required to determine the VAT treatment applicable to the sale of the property.
The completion of the Pre-Contract VAT enquiries form is largely ignored as a receiver does not, in the majority of cases, have ease of access to the information on the VAT history of the property in question nor, in the majority of cases, are they prepared to take the time to consider the history; hence the knee jerk reaction in pressing for a sale of the property under a joint option to tax.
I recall when the changes to VAT and property were announced and how many practitioners viewed the joint option to tax as a positive remedy for dealing with a potential exempt transaction. At that time, and having practiced in the UK advising on UK property transactions, the option to tax in the UK was viewed differently in that there are two clear perspectives. From the vendors’ position it is a protectionary measure to avoid possible VAT liabilities for a change in taxable use. For the purchaser, the perspective differs in that by taxing the sale the property returns to the VAT net and provides for a potential burden to the purchaser depending on their intentions for future use. In the UK, a purchaser met with the proposal for a sale under a joint option to tax would immediately look to assess the value to the vendor in taxing the sale and thereby seek a form of compensation from them for accepting to bring the property back into the VAT net.
Considering the problems that a lack of history to a property causes in conjunction with the significant differences in values of these transitional properties from acquisition to current then is the current system for determining the VAT liability flawed. In some of the transactions I have advised on the level of VAT claw back due at times exceeds the current value of the property. Also, even when a receiver is not involved, the VAT history of the property has been somewhat sketchy. Under current guidance Revenue confirm that receivers and liquidators can request information on the history of a property from Revenue though, to date, most requests seem to be met with a negative if not, minimal response. So how can a receiver/liquidator assess the VAT treatment of a sale, determine whether there is a VAT liability arising from a claw back adjustment or verify whether the owners had deducted VAT on either acquisition or development? The knee jerk reaction of “Joint Option to Tax” is difficult to ignore.
Is there an alternative to his? What if we accepted that the drop in the market had resulted in an unplayable playing field and, what if we agreed that the VAT due on a capitalised value of a lease in 2006 was a paper transaction and the VAT determined was merely a determination and not a supply? Why not agree to determine the VAT claw back adjustment by the current value based on potential intervals remaining? Could this then result in critical decisions being made in what the VAT treatment of a sale of property is and, if exempt, based on the level of VAT payable under the claw back adjustment results in an exempt sale with a compensatory payment for either all or some of this VAT being the more viable option. Just thoughts but, by applying a solution that allows properties that are exempt to be disposed of to remain outside the VAT net avoid the unnecessary taxing of properties.
The VAT Practice provides both vendors and purchasers advice on the application of VAT on a range of property transactions for property in Ireland and the UK. Please contact Nick Ryan on or +353 238838181 should you require guidance on the VAT issues and treatment of a property transaction.

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