VAT Increase and the Effect on Property
Category Newsletter: Article 3
In the Minister of Finance’s Budget Speech on 21 February 2018 it was announced that the standard rate of VAT will change from 14% to 15% on 1 April 2018 (the effective date). This increase will affect property transactions, property registrations and estate agent commissions. Set out in this article is an overview of the effects of the VAT increase on each of these variables in the property market. This will give buyers, sellers and agents an insight into what to expect going forward from April 2018 onwards.
Firstly Sellers need to be aware that if the contract of sale reads that a percentage commission plus VAT is payable, this VAT increase will affect the gross amount payable. On registration after 1 April 2018, the Seller (who will have sold prior to 31 March 2018) will receive a lower net amount on the selling price because of the increased VAT. However should the contract of sale refer to a fixed commission amount inclusive of VAT, the opposite will apply. The seller will receive the same amount, but the agent will receive less because of the increased VAT.
Secondly with regards to fixed property transactions where the rate of VAT is included in the price, such as Developer stock, there is a rate specific rule that may affect the rate of VAT for buyers who entered into a written agreement to purchase a residential property (not a commercial property) before 1 April 2018 and the VAT-inclusive purchase price was outlined and stated in the written agreement signed before 1 April, regardless of the transfer date.
This rate-specific rule applies to residential properties, which includes:
- an existing dwelling, together with the land on which it is erected, or any other real rights associated with that property;
- a plot-and-plan deal where the land is purchased together with a building package for a dwelling to be erected on the land; or
- the construction of a new dwelling by any vendor carrying on a construction business;
- a share in a share block company which confers a right to or an interest in the use of a dwelling.
Please note that article is not intended for legal advice only to make Buyers and Sellers aware of these changes. Although due care was taken to ensure that the facts are correct, the article should not be referred to for legal purposes.Advice should be sought from a conveyancing attorney
Author: Chrissie Johnson