VAT on Residential Buildings
First supply of a residential building
The first supply of a residential building will be zero-rated for VAT purposes. This means that the VAT incurred on costs relating to the first supply of the building can be recovered in full.
The ‘first supply’ includes a supply of the building by either sale or lease, but it must be made within 3 years of the buildings’ completion date.
The completion date of a building is the earliest of the two:
- the date the building is certified as being complete by an appropriately qualified party;
- the date on which the building is occupied
Subsequent supplies of residential buildings
The supply of a residential building other than the first supply, is exempt from VAT.
Where the supplier of the residential building incurs VAT on costs relating to such a subsequent supply e.g. agent fees, or incurs VAT on costs relating to the general upkeep and maintenance of the property after the first supply, then such costs are considered to directly relate to the exempt supply of the building. Hence, the supplier will be unable to recover any VAT on such costs via its VAT return.
VAT Liability of service charges relating to residential buildings
A community master developer or building owner will often charge to the owners or tenants of units for the services of maintaining and running the communal areas. Such charges will be subject to VAT at the standard rate. Such charges do not represent the consideration for a supply of a residential building and as such will not be eligible for zero-rating or exemption.
Supply of accommodation in labour camps
- Where the employer charges the employee a form of consideration in exchange for the residential accommodation, this shall be treated as a supply for VAT purposes.
The consideration received will either be zero-rated (in respect of the first supply of a residential building) or exempt from VAT.
Any costs which directly relate to the provision of that residential accommodation to the employee, for example agent’s fees, shall normally be treated as relating to an exempt supply and shall not be recoverable.
- Where the employer does not make a charge to the employee for the provision of residential accommodation, it is not making a supply for VAT purposes. In such cases, any VAT incurred on costs relating to the provision of the residential accommodation may be recovered as a general overhead cost of the business.
Purchase of residential buildings off plan or prior to completion
The purchase of a residential building ‘off plan’ i.e. direct from the developer prior to construction of the property, or purchase of a partly completed residential building, shall be zero rated.
Farm houses which are located on agricultural land will be considered to be residential buildings where they are occupied, or intended to be occupied as a person’s principal place of residence and meet the conditions to be treated as a residential building.
Conversion of a building into a new residential building
The first supply of a building, or part of a building, which has been converted to a residential building will be zero-rated. The zero-rating will apply provided the following conditions are met:
- the supply must take place within 3 years of the completion of the conversion;
- the original building which was converted, or any part of it, must not have been used as a residential building or comprise of a residential building within 5 years prior to the conversion work commencing.