At a glance
- An indicative property transfer tax rate of 10.4% applies to commercial property, significantly higher than for an owner-occupied home.
- A transfer within two years of first occupation is generally subject to VAT.
- When letting property, you can opt for a VAT-taxable letting to retain VAT deductibility.
Property transfer tax on purchase
An indicative property transfer tax rate of 10.4% applies to non-residential properties, including commercial property. This rate accounts for a substantial share of total acquisition costs and must be included in the return calculation alongside notarial and advisory fees.
VAT or property transfer tax on transfer?
The transfer of a property within two years of first occupation is generally subject to VAT by law; after that, the transfer is in principle exempt from VAT, with property transfer tax payable. Subject to conditions, the buyer and seller can jointly opt for a VAT-taxable transfer even after that period.
Opting for VAT on lettings
- The letting of commercial premises is in principle exempt from VAT.
- The landlord and tenant can jointly opt for a VAT-taxable letting.
- The usual condition is that the tenant uses at least 90% (sometimes 70%) of the premises for activities subject to VAT.
- A VAT-taxable letting enables the landlord to reclaim VAT on maintenance and capital expenditure.
The VAT adjustment period
For property, an adjustment period of generally ten financial years applies to VAT deducted on capital expenditure. If use changes within that period from taxable to exempt (or vice versa), part of the VAT previously deducted or not deducted must be adjusted.
Worked example
When purchasing an industrial building for €800,000 subject to property transfer tax, you pay an indicative €83,200 in property transfer tax, alongside notarial and advisory fees. If the transfer is subject to VAT, you instead pay 21% VAT on the purchase price, which a VAT-liable buyer can generally reclaim.
Frequently asked questions
Can I be liable for both property transfer tax and VAT?
In principle, not simultaneously on the same transfer, except for building land and new properties where both taxes may apply; always have this checked by a tax adviser before completion.
What happens if the tenant no longer meets the conditions for opting for VAT?
The letting then becomes exempt from VAT, potentially requiring an adjustment to VAT previously deducted on the property. Include a safeguard clause in the lease to cover this.