Transitional properties - freehold or freehold equivalent interests held prior to 1 July 2008

This section deals with the supply of freehold or freehold equivalent interests in properties that were completed and held at 1 July 2008.

Together with legacy leases, these properties are referred to as transitional properties.

The Value-Added Tax (VAT) treatment of a long lease that was treated as a supply of goods under the VAT on property rules applying prior to 1 July 2008, are dealt with in Transitional properties – legacy leases.

The supply of a transitional property after 1 July 2008 is taxable when:

  • the vendor was entitled to claim back the VAT on the acquisition or development of the property
  • and
  • the property is considered new for VAT purposes.

Where the vendor was not entitled to claim back VAT on the acquisition or development of the property, or the property is no longer considered new for VAT purposes, then the supply is exempt. However, the vendor and the purchaser may, in certain circumstances, jointly opt to tax the supply.

Where further development is carried out on or after 1 July 2008, a new Capital Good is created. If the owner uses the property for their own business, then normal Capital Goods Scheme adjustments apply.

If the further development makes the property new again, then the property is not treated as a transitional property and normal property rules apply to any subsequent supply. The test of whether the property is made new by the development applies when the property is being sold.  

Where a property is held on 1 July 2008, but is not completed, please refer to the section Value-Added Tax (VAT) and the supply of property.

Further guidance contains more detailed information on the VAT treatment of transitional properties.