Lenihan acts to save councils VAT costs

A TRANSITIONAL arrangement is to be put in place in the Finance Bill 2011 to prevent local authorities from losing VAT payments they make when they sell homes on the open market.

Dún Laoghaire Rathdown County Council had told its councillors it could lose up to €3 million when it sells 140 affordable homes on the open market after a new VAT regime begins this month.

Under the new regime, local authorities are required to charge VAT of 13.5 per cent on properties they sell.

Dún Laoghaire Rathdown had decided to absorb this rather than pass it on to purchasers because it would make the cost of buying a property too high in the current market.

The council could claim VAT input credits from the Revenue Commissioners on property it purchased from developers after July 1st, but because all the 140 homes were bought before that date, they could not reclaim credits.

However, the new transitional arrangement to be introduced as part of the Finance Bill 2011 will mean local authorities will be able to claim the VAT credits on property purchased before July 1st and then sold on.

Minister for Finance Brian Lenihan said he had decided to introduce a transitional measure to adjust VAT on the point of sale of council properties, which “will greatly assist local authorities who otherwise would have been disadvantaged.”

He said that the measure would be enacted in the Finance Bill 2010, but would be effective retrospectively from July 1st.