# VAT payable on affordable housing



## Howitzer (17 Oct 2006)

If a developer sells a property under the affordable housing scheme for, say, 300K, and a notional value of 400K has been attached to the property under the scheme, so that the buyer has been given a 25% discount, does the developer have to pay the 13%(?) VAT inclusive on the 300K sale price or the 400K notional price?


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## liteweight (17 Oct 2006)

I'd imagine he only has to pay 13.5% on the 300K as this is what he will actually invoice.


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## bazermc (17 Oct 2006)

liteweight said:


> I'd imagine he only has to pay 13.5% on the 300K as this is what he will actually invoice.



Yes, he would only pay VAT on the actual amount received, being E300K


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## Howitzer (18 Oct 2006)

So just to be clear. If a developer is, hypothetically, given a city centre site with a value attched of E10M is exchange for E10M worth of discounts on affordable houses which he is selling, he would instantly make E1.35M on the deal in VAT which he would otherwise have had to pay on the affordable houses if they sold on the open market at their notional pre-discount price?


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## liteweight (18 Oct 2006)

Howitzer said:


> So just to be clear. If a developer is, hypothetically, given a city centre site with a value attched of E10M is exchange for E10M worth of discounts on affordable houses which he is selling, he would instantly make E1.35M on the deal in VAT which he would otherwise have had to pay on the affordable houses if they sold on the open market at their notional pre-discount price?



Food for thought.........on the face of it yes he would. However if he then developed the city centre site and sold it off, I presume he'd have to pay the VAT. Also, although he pays VAT on the original properties, he charges that on to the people who buy. Therefore isn't it the buyers who pay this VAT ultimately in bite sized chunks??


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## Howitzer (18 Oct 2006)

liteweight said:


> Food for thought.........on the face of it yes he would. However if he then developed the city centre site and sold it off, I presume he'd have to pay the VAT. Also, although he pays VAT on the original properties, he charges that on to the people who buy. Therefore isn't it the buyers who pay this VAT ultimately in bite sized chunks??


 
Not sure about that. 

If he was to sell the site on again for E10M he would incur no profit and thus have no CGT liability but would have made E1.35M on the enitre deal for no extra work.


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## ubiquitous (18 Oct 2006)

Howitzer said:


> So just to be clear. If a developer is, hypothetically, given a city centre site with a value attched of E10M is exchange for E10M worth of discounts on affordable houses which he is selling, he would instantly make E1.35M on the deal in VAT which he would otherwise have had to pay on the affordable houses if they sold on the open market at their notional pre-discount price?



I cannot imagine this being allowed to happen in practice. There is a principle of "unjust enrichment" in VAT law that basically forbids anyone from making inflated or windfall profits through the workings of the VAT system and allows the Revenue free rein to recoup such profits from anyone in that situation. 

I am sure if you bring your concerns to a senior official in the relevant section of the Dept of Environment and/or local authority they will confirm to you that the scenario you outline above is impossible in practice.


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## liteweight (18 Oct 2006)

There's something ticking a the back of my head....The scenario just doesn't sound right, apart from what Ubiquitous has said above. The builder never makes the money on the properties, he is simply a conduit for the Rev. This is going to annoy me all day!! Thanks Howitzer!!


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## Vanilla (18 Oct 2006)

But developers don't sell under the affordable housing scheme anyway do they? I thought it was always the case that the council purchased or were transferred the houses in question and then sold them on as affordable housing? At least that is the way it was done in the affordable housing schemes I have dealt with.


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## Howitzer (18 Oct 2006)

Vanilla said:


> But developers don't sell under the affordable housing scheme anyway do they? I thought it was always the case that the council purchased or were transferred the houses in question and then sold them on as affordable housing? At least that is the way it was done in the affordable housing schemes I have dealt with.


 
They do now. State loses cash windfall in swap for affordable homes 

I'm looking for definitive answers as to whether the cash windfall they were going to make was even bigger than I'd first estimated.


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## Vanilla (18 Oct 2006)

I see that in the second article you linked to there was a mention that the developer would sell directly to the applicants under the scheme- but I'd imagine that even where this is so it is under a transfer in which the council will be a party to the transaction as beneficial owners even if not registered owners so the VAT implications in this thread may not apply.


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## Howitzer (18 Oct 2006)

Vanilla said:


> I see that in the second article you linked to there was a mention that the developer would sell directly to the applicants under the scheme- but I'd imagine that even where this is so it is under a transfer in which the council will be a party to the transaction as beneficial owners even if not registered owners so the VAT implications in this thread may not apply.


 
I'd thought about that but the beneficial ownership accruing to the coucil disminishes over time to 0 after (I think) 10 years so the VAT liability effectively disappears after that point.

Also, if that was the case then the discount been given to the buyer should be, in the trivial example above, not 25% but 29.7% as it includes both the discount and the developers VAT liability. This would have implications for the owner if they were to sell the property on before the 10 year period was over and they accrued a clawback liability to the council. The council would/should then pass that on as the original VAT liability. 

This certainly isn't how the samples linked were described.


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## liteweight (18 Oct 2006)

The builder doesn't make any profit on VAT. He only charges this on whatever he sells. He then passes this amount over to Rev. less any deductions he's entitled to make. If he sells affordable housing, the sale still includes a VAT element albeit, less. The State loses out on the extra VAT but this is potentially far less than it would cost them to build social housing. The builder gains nothing.

With regard to the capital gains tax on the 10M, I know on the face of it there doesn't seem to be a liability if the builder sells immediately but surely the powers that be would not allow this to happen as Ubiquitous states.


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## Howitzer (18 Oct 2006)

liteweight said:


> The State loses out on the extra VAT but this is potentially far less than it would cost them to build social housing. The builder gains nothing.


 
That is the exact point I looking to clarify. In the samples in the other thread the discount offered by the developer is directly linked to the price of a site swopped to them by the state. The price attached to the site makes no mention of the VAT liability that the developer would have had to charge on the properties at full price, as such VAT that would have gone to the state disappears. This is hardly a cheaper solution.

The builder does make a profit on the VAT as he doesn't have to charge for it, and so doesn't have to pay it, but instead receives an asset equal in value to what he would have had to charge.


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## liteweight (18 Oct 2006)

So it all swings on whether the 10M is net of VAT or VAT inclusive???


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## Howitzer (16 Mar 2010)

Bump.

[broken link removed]



> Local authorities may have to pay VAT on sales of affordable housing as part of reforms in the Finance Bill. Council swimming pools and playing pitches are also due to be taxed. A report to Dublin City Council's Finance Committee states that the sale of new or nearly houses is planned to be included in the new tax which comes in on 1 July. The City Council is negotiating with the Revenue Commissioners and the report states that they are lobbying to have affordable housing listed as a non-taxable service. - RTE


 
Indirectly related but ultimately I think it boils down to the same thing. The more light that is shone on this Affordable Housing gravy train the more it stinks.


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## Joe_90 (16 Mar 2010)

To go back to the original figures - Open market value €400,000 x 25 houses so builder gets €10m.
Under the Social / Affordable scheme the site is valued much lower so the proceeds for a Social house is €300,000. Total proceeds are now €7.5m.

VAT bill was €1,189,427 and its now €892,070 but the builder is down €2.5m. 

The builder has to account for sales VAT whether paid in cash or the transfer of a site.


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