Commenting on the new VAT on Property rules announced in Finance Bill 2008, Aidan Fagan, Tax Partner, Deloitte said: “The new rules are, in principle, more logical, and should be easier to follow.  However, the devil is, as always, in the detail. The fact that there are now some 27 pages in the Finance Bill devoted to the new rules, and the transitional rules, which are required to bridge the gap between the old and the new, speaks volumes. It also raises the question as to whether there is enough time for the industry to become familiar with these rules before 1st July next.

Indeed, it will be a significant challenge to all players, including builders, developers, investors, commercial tenants, tax advisors and Revenue themselves, to bed down these new rules as quickly as possible, and ensure that the cure does not become worse than the disease. This is especially important in the context of the current sensitivity in the property market.

There is no doubt about the fact that the current VAT on property regime is badly in need of reform. In many instances establishing who is responsible for the VAT arising on a transaction leads to protracted disputes between parties to a deal, thus adding unnecessary costs. Indeed, in some cases the commercial deal has had to be revised in order to facilitate the VAT rules.

That said, I am happy to note that a number of the suggestions made in relation to the proposed changes appear to have been taken on board. For example, the general 90% rule, which required a tenant to have at least 90% VAT recovery before a lease could be treated as vatable, has been substantially modified. This should remove some of the potential increase in VAT and other tax costs.”

Ends

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