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 completed properties held at 1 July 2008.

Transitional properties comprise of these interests together with legacy leases.

The Value-Added Tax (VAT) treatment of leases of ten years or more, created prior to 1 July 2008, is 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.

The supply of a transitional property on or after 1 July 2008 is exempt 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.

However, the vendor and the purchaser may, in certain circumstances, jointly opt to tax the supply.

Further development carried out on or after 1 July 2008 creates a new Capital Good in respect of the development. 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:

• the property is no longer a transitional property
• and
• normal property rules apply to any subsequent supply.

The test of whether the development makes the property new applies on sale of the property.

For developed but incomplete property held on 1 July 2008 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.