With the increase in VAT from 14% to 15%, buyers, sellers and agents in the property market are going to be feeling the impact of this increase.
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. Now, on registration, the seller who sold prior to March 31 will receive a lower net amount of 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 regard to fixed property transactions where the rate of VAT is included in the price, for example when buying new stock from a developer, the following applies. There is a rate-specific rule that may affect the rate of VAT for buyers who signed a purchase contract before April 1, but where the payment and registration only take place after this date. In this case, 14% VAT will be paid if the following criteria are met: The buyer entered into a written agreement to purchase the residential property, which is not a commercial property, before April 1 and the VAT-inclusive purchase price was outlined and stated in the written agreement signed before April 1, regardless of the transfer date.
This rate-specific rule applies to residential properties, which includes the following: an existing dwelling, together with the land on which it is erected, or any other real rights associated with that property; plot and plan deals where the land is purchased together with a building package for a dwelling to be erected on the land; the construction of a new dwelling by any vendor carrying on a construction business; and a share in a share block company which confers a right to or an interest in the use of a dwelling.
Tim Johnson is an estate agent at Seeff Dolphin Coast.