GST and Residential Property - Scratching Beneath the Surface
Ever since the Goods and Services (Jersey) Law 2007 introduced a 3% sales tax in 2008, GST has been the buzzword of the Property world. The impact of GST on Property transactions is far-reaching and with the recent amendments to the GST Law and the GST Regulations 2007 the importance of keeping track of the legislation cannot be overstated. Most people are aware of the prima facie rule that GST is not chargeable on residential property transactions, due to such supplies being zero-rated under the GST Law. This article will highlight some exceptions to this rule.
The starting point is always that supplies made in Jersey by a taxable person in the course of a business are taxable at the standard rate of 3%, unless the GST legislation specifically provides otherwise. Once satisfied that the transaction is by a taxable person (i.e. registered for GST or liable to be and not an ISE) in furtherance of a business, the next step is to ascertain whether the supply in question is zero-rated or exempt and whether exceptions apply. The significance of making zero-rated and not exempt supplies is that suppliers of zero-rated supplies (e.g. dwellings) may register for GST and claim input tax credits, whilst businesses making solely exempt supplies (e.g. medical services, insurance, education) may not.
In practice many residential property transactions are undertaken by private individuals not registered for GST nor transacting in the furtherance of a business and therefore no GST will be incurred. However, in other cases the parties are relying upon the zero-rating and in this eventuality certain exceptions apply. The GST Law lists four main exceptions whereby GST will in fact be chargeable on residential transactions: Firstly if the relevant sale, transfer or lease prevents the recipient from residing in the dwelling continuously throughout the term; secondly if the relevant interest, right or licence does not extend to the recipient residing in the dwelling continuously throughout the term; thirdly if the term of the right or interest is less than 3 months; and finally if there is a restrictive agreement or covenant, or permission under the Planning Law, which prevents the use of the dwelling as the recipient's principal private residence. Thus supplies of holiday lets of less than 3 months, other short-term licences and hotel accommodation are standard-rated.
Subsequent Directions and Amendments to the GST Law have clarified a number of grey areas. GST Direction 2008/02 made clear that supplies of lodging house accommodation are zero-rated. The GST Office confirmed that notwithstanding the wording of the exceptions being capable of meaning that 'buy-to-let', 'let to let' or J-Cat purchases would be standard rated (since the recipient would not actually be residing in the dwelling itself), such transactions are indeed zero-rated. The Goods and Services Tax (Amendment No. 2) (Jersey) Law 2010 has formalised this position stating that the supply of an interest in or right over 'a building intended solely for use for a relevant residential purpose' is zero rated, and the same applies to dwellings still at the planning stage. This builds on the fact that (subject to certain exceptions) supplies made by the person 'constructing' a building on land (even if the building was constructed years ago) are zero-rated. We always return to the fact that the supply must be for residential use, so for example the sale of a garage will attract GST unless it is 'reasonably near' a dwelling being supplied at the same time.
The GST Law has hidden depths for residential transactions and the rules relating to commercial property are equally multi-faceted. You are therefore advised to take specific GST advice when contemplating any property transaction. For example there is a need for caution when dealing with ISEs. In an effort to prevent the misuse of ISE status, the Law provides that if the ISE's contemplated transaction (to a non-ISE) represents over 10% of its annual supplies, then GST is payable at the standard rate. In such circumstances confirmation may be sought from the Comptroller that the ISE may retain this status for the purpose of such a transaction. Moreover the recent Amendment further tightens the ISE exemption by making certain that supplies will incur GST unless they are entirely for the purpose of the ISE's business, which is relevant to property transactions since these can often be ancillary thereto. The good news is that the recent Amendment also brings greater clarity that the disposition of a business as a going concern (e.g. the sale of an investment property subject to leases) is zero-rated and the recent amendments to the 2007 Regulations have made certain that the 'place of supply' of services relating to land is where the relevant land is situated.
If you have any queries relating to this article or GST and property in general, please contact Wendy Lambert or Gavin Renault in the Mourant du Feu & Jeune Property Team for advice on +44 1534 676 983.
