The current rules for VAT on property transactions were introduced in Finance Act 2008. The supply of a freehold property or freehold equivalent interests in “new” properties in the course of economic activity is subject to VAT. The following five and two year rules determine if a property is “new”-

• The first supply of a completed property within five years of its completion is subject to VAT.
• The second and subsequent supply of a property within five years of its completion is subject to VAT if it takes place within two years of occupation.

Generally, all sales of “old” property (those outside the period when considered “new”) are exempt from VAT.  The notable exception is the sale of residential properties by a developer/builder where the two or five year rules do not apply.

Where a property is exempt from VAT a joint option is provided for whereby the seller and purchaser can opt to tax the sale.

The letting of property is exempt from VAT. The landlord may opt to tax the letting for that specific property. However, the option to tax does not apply to:

• A letting of residential property, or
• A letting between connected parties (unless the tenant has at least 90% Vat recovery)

Vat on the sale of property is charged at the Reduced Rate (13.5%) and Vat on Lettings are charged at the standard rate (23%)