VAT-exclusive consideration

Updated on March 25, 2022

Overview

Consideration in real estate transactions is typically the purchase price, less any applicable Value-Added Tax (VAT).

Stamp Duty, on the other hand, takes into account more than just monetary value. In this part, the most important guidelines are laid down.

The Tax and Stamp Duty Manual’s fifth section, “Consideration,” has extra information.

Leases

As part of the payment for a lease agreement, rent and a premium are the most common forms of payment. However, the following may also be taken into account:

The landlord receives shares of your property, as well as produce or other items from you.
If you sell shares, products, or goods, you must pay Stamp Duty on the whole purchase price.

Example
Orla has agreed to let James have a five-year lease on her building.

James is strapped for cash and unable to pay Orla’s €20,000 asking price.

They have agreed that James will transfer €20,000 worth of shares to Orla.

The annual rent is €5,200, and the shares are transferred as part of the agreement.

It costs James €5,200 a year in Stamp Duty on the average annual rent (€5,200) and €20,000 on the value of the shares.

As a part of transferring the shares to James, Orla must pay Stamp Duty. Orla will have to pay €20,000 in Stamp Duty.

Stamp duty is levied on a notional premium when a lease is viewed as a gift. To learn more about gifts, please click here.

Transfers of property

When you buy a house, the price does not include any VAT (VAT).

The construction of a new office for your business will cost you €200,000.

Before you may claim ownership of this property, you must execute an instrument (sometimes referred to as a Deed of Transfer) (signed, sealed, or both).

If the acquisition price is €200,000 or more, stamp duty must be paid.

As an illustration, consider the following scenario.
However, money isn’t the only factor to take into account. If the seller or transferor of the property owes you money, you can assume that liability and hold them accountable (usually called assumption of a debt). In some cases, it is feasible to trade a debt for a property (usually called satisfaction of a debt). One option is to sell your stock to a buyer.

Stamp Duty, a tax imposed by the government, is levied on the value of a loan or shares.

Stamp duty must be paid on the higher of these two amounts if you assume responsibility for repaying a debt.

For equity redemption, what was paid in addition to the assumed debt (including a mortgage) It is the gap in market value and assumed debt that constitutes the equity of redemption. Consider this other perspective: The equity in a property is the property’s total value.
To demonstrate what I mean, consider the following scenario: There is no gift involved in this scenario.
An example is provided: Cash and debt are assumed; no gift is included.
The 5th Experiment is now complete (no cash and debt assumed; partial gift)
Here’s an illustration of how it works: (assumption of monetary and financial obligations; partial gift)
Examining the seventh occurrence (assumption of cash and debt; partial donation)
No cash or obligations are assumed; this display is a partial gift.

Stamp duty is charged depending on the market worth of the property if the property is in negative equity. This restriction applies to both business and residential loans. As long as you owe more on your house than its market worth, you have negative equity. If you were to sell your home, you would owe the bank more money than it is worth.

Compliance with a contractual agreement.
When a debt is paid in full, Stamp Duty is levied on the amount that is greater:

Any additional payments or market value owed.
In the case of stock transfers, Stamp Duty must be paid for each share.

Examples 10 and 11 show where various species can be found.
A corporation’s stockholders include people like you. Office buildings and other business and residential properties can be purchased through the company.

In the event of a company’s dissolution, there are a few considerations.

Once the creditors’ debts have been paid off, the remaining assets belong to the shareholders. There may be a windfall for the shareholder if these assets are sold.

Proportional asset allocation is another option for allocating corporate resources.

A “distribution in specie” occurs when assets, rather than money, are transferred. Transferring assets in this way avoids the need for stamp duty. Including Stamp Duty in your tax return is not required.

To be charged stamp duty, a transaction must meet the following criteria:

The transfer is made, but only after the assets have been charged (mortgaged).

VAT-exclusive consideration

The price of a new property may include VAT if you decide to buy or lease it. VAT is exempt from Stamp Duty.

You must figure out the VAT-free amount if the consideration includes VAT. On the VAT-free amount, you’ll have to pay Stamp Duty.

Example
You spend €400,000 on a new property, which includes 13.5 percent VAT.

Subtract €400,000 from 1.135 to arrive at the VAT-exempt price. This comes to €352,422.90.

On the €352,422.90 VAT-exclusive consideration, you must pay Stamp Duty.

Consideration in a foreign currency

Euros must be exchanged for any payment in an other currency. Once an agreement is signed, sealed, or both, you use the current exchange rate (written document).

Example
For a stake in XYZ Ltd., you pay US$50,500.

On October 28th, 2018, a document was signed and sealed that transferred ownership of the shares to you.

It was €1 = $1.11 on October 28th, 2018 between the Euro and the US dollar.

to begin with, let’s say $50,000.

The Euro’s equivalent of $45,454.55 in US dollars is €45,454.55 (50,500 x 1.1).

Stamp duty is due on the amount of €45,454.55.

What if you do not know the consideration?

You may not know the final price on the date of execution (signing, sealing or both) of the instrument (written document). In this case, you pay Stamp Duty on the market value of the property.

There are four exceptions to this rule.

Exception 1

When you buy a business, the agreement to transfer the business to you (usually called a business asset transfer agreement) may provide for:

  • an initial payment
  • and
  • an adjustment when the final net value is known.

The adjustment may result in a further payment or refund at a later agreed date.

Stamp Duty may be paid on the market value. If you do not pay Stamp Duty on the market value, you can alternatively:

  • indicate on the Stamp Duty return that you do not have the final consideration
  • file the return
  • pay Stamp Duty on the initial payment.

If the final consideration is higher you should amend your return to the final consideration and pay the additional Stamp Duty due.

You will be charged interest if you are late paying the extra duty. If you want the interest removed, you should write to the National Stamp Duty Office. You should include your Document ID and reasons why the interest should be removed in your request.

If the final consideration is lower, you may claim a refund of the Stamp Duty overpaid. You should amend your Stamp Duty return before claiming the refund.

NOTE

Exception 1 does not apply to consideration that is linked to the performance of the business in the years following the acquisition. Such consideration might be expressed in terms of a formula related to after-tax profits and may be capped at a specified amount.

Exception 2

If you buy shares and you agree to pay:

  • an initial payment
  • and
  • an adjusted payment when completion accounts are ready

you should:

  • indicate on the return that you do not have the final consideration
  • file the return
  • pay Stamp Duty on the initial payment.

Exception 3

In the case of a lease, if at the date you execute the instrument, you know the:

  • rent but not the premium
    • you pay Stamp Duty on the rent and the market premium
  • premium but not the rent
    • you pay Stamp Duty on the premium and the market rent.

You pay Stamp Duty on the market premium, if you do not know either the rent or the premium.

Exception 4

You pay Stamp Duty on ten times the market value of a site if:

  • you lease or buy the site with a connected building agreement to build residential property on it
  • and
  • you do not know the full consideration.