Finance Act 2008
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Option to tax lettings of immovable goods, etc. |
91.— The Principal Act is amended with effect from 1 July 2008 by inserting the following sections after section 7: | |
“Option to tax lettings of immovable goods. | ||
7A.— (1) (a) Tax shall be chargeable in accordance with this Act on the supply of a service to which paragraph (iv) of the First Schedule relates (in this section referred to as a ‘letting’) where, subject to subsections (2) and (4), the supplier (in this section referred to as a ‘landlord’) opts to make that letting so chargeable, and a landlord who exercises this option (referred to in this Act as a ‘landlord’s option to tax’) shall, notwithstanding section 8(3), be an accountable person and liable to account for the tax on that letting in accordance with this Act, and that letting shall not be a supply to which section 6 applies. | ||
(b) Where a taxable person is entitled to deduct tax on the acquisition or development of immovable goods on the basis that the goods will be used for the purpose of a letting or lettings in respect of which a landlord’s option to tax will apply, then— | ||
(i) that person shall be treated as having exercised the landlord’s option to tax in respect of any lettings of those immovable goods, and | ||
(ii) that option shall be deemed to continue in place until that person makes a letting in respect of which neither of the conditions of paragraph (c) are fulfilled. | ||
(c) A landlord’s option to tax in respect of a letting is exercised by— | ||
(i) a provision in writing in a letting agreement between the landlord and the person to whom the letting is made (in this section referred to as a ‘tenant’) that tax is chargeable on the rent, or | ||
(ii) the issuing by the landlord of a document to the tenant giving notification that tax is chargeable on the letting. | ||
(d) A landlord’s option to tax in respect of a letting is terminated— | ||
(i) in the case of an option exercised in accordance with paragraph (b), by making a letting of the immovable goods referred to in that paragraph in respect of which neither of the conditions of paragraph (c) are fulfilled, | ||
(ii) in the case of an option exercised in accordance with paragraph (c), by— | ||
(I) an agreement in writing between the landlord and tenant that the option is terminated and specifying the date of termination, or | ||
(II) the delivery to the tenant of a document giving notification that the option has been terminated and specifying the date of termination, | ||
(iii) when the landlord and tenant become connected persons, | ||
(iv) when a person connected with the landlord commences to occupy the immovable goods that are subject to that letting whether that person occupies those goods by way of letting or otherwise, or | ||
(v) when the immovable goods that are subject to that letting are used or to be used for residential purposes within the meaning of subsection (4). | ||
(2) (a) A landlord may not opt to tax a letting— | ||
(i) subject to paragraph (b), where that landlord and the tenant in respect of that letting are connected persons, or | ||
(ii) where the landlord is not connected to the tenant but is connected to any person who occupies the immovable goods that is subject to that letting, whether that person occupies those goods by way of letting or otherwise. | ||
(b) Paragraph (a)(i) shall not apply where the immovable goods which are the subject of the letting are used for the purposes of supplies or activities which entitle the tenant to deduct at least 90 per cent of the tax chargeable on the letting in accordance with section 12. However, where a landlord has exercised a landlord’s option to tax in respect of a letting to which paragraph (a)(i) would have applied but for this paragraph, paragraph (a)(i) shall apply from the end of the first accounting year in which the goods are used for the purposes of supplies or activities which entitle the tenant to deduct less than 90 per cent of the said tax chargeable. | ||
(3) (a) For the purposes of this section any question of whether a person is connected with another person shall be determined in accordance with the following: | ||
(i) a person is connected with an individual if that person is the individual’s spouse, or is a relative, or the spouse of a relative, of the individual or of the individual’s spouse, | ||
(ii) a person is connected with any person with whom he or she is in partnership, and with the spouse or a relative of any individual with whom he or she is in partnership, | ||
(iii) subject to clauses (IV) and (V) of subparagraph (v), a person is connected with another person if he or she has control over that other person, or if the other person has control over the first-mentioned person, or if both persons are controlled by another person or persons, | ||
(iv) a body of persons is connected with another person if that person, or persons connected with him or her, have control of that body of persons, or the person and persons connected with him or her together have control of it, | ||
(v) a body of persons is connected with another body of persons— | ||
(I) if the same person has control of both or a person has control of one and persons connected with that person or that person and persons connected with that person have control of the other, | ||
(II) if a group of 2 or more persons has control of each body of persons and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom he or she is connected, | ||
(III) if both bodies of persons act in pursuit of a common purpose, | ||
(IV) if any person or any group of persons or groups of persons having a reasonable commonality of identity have or had the means or power, either directly or indirectly, to determine the activities carried on or to be carried on by both bodies of persons, or | ||
(V) if both bodies of persons are under the control of any person or group of persons or groups of persons having a reasonable commonality of identity, | ||
(vi) a person in the capacity as trustee of a settlement is connected with— | ||
(I) any person who in relation to the settlement is a settlor, or | ||
(II) any person who is a beneficiary under the settlement. | ||
(b) In this subsection— | ||
‘ control ’, in the case of a body corporate or in the case of a partnership, has the meaning assigned to it by section 8(3B); | ||
‘ relative ’ means a brother, sister, ancestor or lineal descendant. | ||
(4) A landlord’s option to tax may not be exercised in respect of all or part of a house or apartment or other similar establishment to the extent that those immovable goods are used or to be used for residential purposes, including any such letting— | ||
(a) governed by the Residential Tenancies Act 2004 , | ||
(b) governed by the Housing (Rent Books) Regulations 1993 ( S.I. No. 146 of 1993 ), | ||
(c) governed by section 10 of the Housing Act 1988 , | ||
(d) of a dwelling to which Part II of the Housing (Private Rented Dwellings) Act 1982 applies, or | ||
(e) of accommodation which is provided as a temporary dwelling for emergency residential purposes, | ||
and a landlord’s option to tax, once exercised, shall immediately cease to have effect to the extent that the immovable goods which are the subject of the letting to which the option applies, come to be used for a residential purpose. | ||
Transitional measures: waiver of exemption. | ||
7B.— (1) This section applies to an accountable person who had waived his or her right to exemption from tax in accordance with section 7 and who had not cancelled that waiver before 1 July 2008 (hereafter in this section referred to as a ‘landlord’). | ||
(2) Section 12E does not apply to a landlord to the extent that tax relating to the acquisition or development of immovable goods has been or would be taken into account in calculating, in accordance with section 7(3), the sum, if any, due by that landlord as a condition of the cancellation of a waiver. | ||
(3) Where a landlord has made a letting and, were that letting not already subject to a waiver, that letting would be one in respect of which the landlord would not, because of the provisions of section 7A(2), be entitled to exercise a landlord’s option to tax in accordance with section 7A, then the landlord’s waiver of exemption shall, subject to subsection (4), immediately cease to apply to that letting, and— | ||
(a) that landlord shall pay the amount, as if it were tax due by that person in accordance with section 19 for the taxable period in which the waiver ceases to apply to that letting and the amount shall be the sum, if any, which would be payable in accordance with section 7(3) in respect of the cancellation of a waiver as if that landlord’s waiver applied only to the immovable goods or the interest in immovable goods subject to that letting to which the waiver has ceased to apply, and | ||
(b) the amounts taken into account in calculating that sum, if any, shall be disregarded in any future cancellation of that waiver. | ||
(4) (a) Subject to paragraph (c), where a landlord has a letting to which subsection (3) would otherwise apply, the provisions of that subsection shall not apply while, on the basis of the letting agreement in place, the tax that the landlord will be required to account for, in equal amounts for each taxable period, in respect of the letting during the next 12 months is not less than the amount calculated at that time in accordance with the formula in subsection (5). | ||
(b) Where the conditions in paragraph (a) fail to be satisfied because of a variation in the terms of the lease or otherwise or if the tax paid at any time in respect of the letting is less than the tax payable, this subsection shall cease to apply. | ||
(c) This subsection applies to a letting referred to in paragraph (a)— | ||
(i) where a landlord has a waiver in place on 18 February 2008 and— | ||
(I) on 1 July 2008 that letting had been in place since 18 February 2008, or | ||
(II) the immovable goods subject to the letting are owned by that landlord on 18 February 2008 and are in the course of development by or on behalf of that landlord on that day, | ||
or | ||
(ii) where a landlord holds an interest, other than a freehold interest or a freehold equivalent interest in the immovable goods subject to the letting, acquired between 18 February 2008 and 30 June 2008 from a person with whom the landlord is not connected, within the meaning of section 7A, in a transaction which is treated as a supply of goods in accordance with section 4. | ||
(5) The formula to be used for the purposes of subsection (4) is: | ||
A — B | ||
12 — Y | ||
where— | ||
A is the amount of tax that would be taken into account for the purposes of section 7(3) in respect of the acquisition or development of the immovable goods, if the waiver were being cancelled at the time referred to in subsection (4), | ||
B is the amount of tax chargeable on the consideration by the landlord in respect of the letting of those immovable goods and paid in accordance with section 19 that would be taken into account for the purposes of section 7(3) if the waiver were being cancelled at that time, and if that letting were the only one to which that waiver applied, and | ||
Y is 11, or the number of full years since the later of— | ||
(i) the date of the first letting of those goods, and | ||
(ii) the date on which the landlord waived exemption, | ||
where that number is less than 11 years.”. |