The Gazette 1973

VALUE ADDED TAX ON SALE OF PROPERTY

trading group selling off a branch developed after 31/10/72 would be liable to VAT as credit could have been claimed on VAT suffered on development. Such a sale would be in course of business.) Example 3 It may be arranged in the contract that the price of premises subject to VAT shall be tax-inclusive. Sale by builder of house newly built or developed after 31/10/72 £10,000 (Tax included in £1,000 equals £305.90.) Tax-exclusive price £9,694.10 Add VAT at 3.156 per cent £305.90 Total payable on completion £10,000.00 In this case the purchaser of the house as a residence will receive no tax credit. On a subsequent sale by an unregistered person there will be no further liability for VAT but in the case of business premises if the pur- chaser is an accountable person under Section 8 i.e. a person engaged in the delivery of taxable goods or ser- vices and the premises are acquired for that purpose he will be entitled to an invoice for tax included in the price i.e. £305.90 and will be entitled to a tax credit for the amount shown on the invoice against VAT on his trading receipts. Building contracts which straddle 31/10/72 present special problems and members should refer to Section 35 of the Act which contains provisions for adjustment and recovery of consideration in such cases. The tax on housing under VAT is estimated to be the same as under the previous system of turnover and wholesale tax. If, therefore, a price for the erection of a house has been agreed before November 1st there would normally be no case for an adjustment of the price merely because some of the payments were received by the builder after November 1st. In fixing the price of a new house after November 1st, it would be most desir- able to make quite clear whether the price is inclusive of VAT or whether it is a tax-exclusive amount to which an appropriate addition for VAT may be made later on. In general it is thought that it will simplify matters to make VAT sales of property at tax-inclusive prices so that VAT will be regarded as included in the pur- chase price. VAT may also arise on the creation of rents on their capitalised values whether in respect of developed land or new office or shop buildings where the lease is for more than ten years. It is important to realise that on a sale of property chareable with VAT where there has been a partial development e.g. a garage worth £100,000 with a development-worth e.g. £2,000 the whole consideration £102,000 will attract VAT. The purchaser who re- ceives an invoice for the VAT charged will be entitled to a tax credit for the VAT charged against his subse- quent trading receipts. It is suggested that the following among the pre- contract enquiries should be made by the solicitor for the purchaser of property. 74

VAT became part of the tax system on 1 November 1972. Solicitors are exempted from liability to register and pay VAT on fees received for services rendered in the course of their profession. The tax applies to building construction including the provision of new houses and other new buildings and may also apply to sales of land and existing buil- ding which have been the subject of development after 31/10/72. Except in exceptional circumstances as provided for in Section 4 (5) of the Value-Added Tax Act 1972 VAT does not apply to sales of undeveloped land or sales of secondhand houses or other buildings. Even in the case of developed land no liability will arise on sale unless the person selling it has carried out some devel- opment work such as demolition, extension, alteration or construction on it after 31/10/72 or is deemed to be caught under Section 4 (5) of the Act (disposal by person other than the developer, e.g. a lessor granting a lease to the builder's nominee). A client who is a registered person i.e. who carries on a business not exempted from VAT may be liable for VAT on the sale of the premises. The effective rate is 3.156 per cent on the purchase price (5.26 per cent on 60 per cent of the total tax exclusive consideration). He will be entitled to issue an invoice showing VAT as a separate item. If the purchaser is himself a regis- tered person he will be entitled to credit for the tax so paid against VAT on his ordinary trading receipts. If the purchaser who acquires the premises is not an accountable person (e.g. a bank or an accountant) he will have no means of recovering VAT paid to the vendor as he will have no income chargeable to VAT. Although solicitors are not accountable persons they will no doubt be consulted by clients in the course of selling or buying as to the impact of the tax. The main relevant documents are : Value Added Tax Act 1972; Value Added Tax Regulations 1972 (S.I. No. 177 of 1972); Guide to the Value Added Tax issued by the Revenue Commissioners, particularly Chapter 20, obtainable on application to Dublin Castle. The client is the accountable person and where the vendor is registered should be reminded of his liability to account for the tax which he can pass on to the purchaser. The purchaser in turn should be reminded of his liability to pay the tax to the vendor and his right to obtain an invoice which may be used to obtain a tax credit if he is registered. Example 1 Sale after 31/10/72 of new property in respect of which there has been no development after 31/10/72 —No VAT liability on vendor or purchaser. Wholesale tax and turnover tax will have been paid on the com- ponent materials—Section 35. Example 2 Sale not in the course of business of any premises even where there has been development after 31/10/72 —No VAT liability on vendor or purchaser. ("Course of business' is a wide term. A multiple