VAT waiver of exemption

On 23 June 2025, Revenue issued updated guidance regarding the cancellation of VAT ‘waivers of exemption’ in respect of property lettings of less than 10 years which had been exercised prior to 1 July 2008 (hereafter ‘waivers’).

The update guidance confirms that, with effect from 20 December 2024, Revenue will no longer seek to collect a waiver “cancellation amount” when a waiver is cancelled.

This is a positive change for taxpayers owning properties subject to a waiver and follows the High Court judgment in the Killarney Consortium v. The Revenue Commissioners case delivered on 20 December 2024. That judgment concluded that the waiver cancellation provisions which required a landlord to repay the excess of VAT reclaimed over VAT charged in connection with a waiver are incompatible with EU VAT law.

The guidance is silent on whether taxpayers who paid a waiver cancellation sum before 20 December 2024 can now reclaim that VAT as overpaid tax. However, subject to a review of the fact pattern and the statute of limitations of 4 years, there may be scope to pursue such claims based on the Killarney Consortium judgment. Please contact a member of the KPMG Indirect Tax team if you would like to discuss this further.

Glenn Reynolds

Partner, Head of Indirect Tax - VAT & Customs

KPMG in Ireland

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Background

Waivers of Exemption

Prior to 1 July 2008, the letting of property for a period of less than 10 years was exempt from VAT by default. Therefore, ordinarily, a landlord would not have any VAT recovery entitlement in relation to properties used for those types of lettings.
However, a landlord could elect to waive exemption by notifying Revenue, thereby allowing the landlord to recover VAT in respect of such properties. The waiver, once exercised, then applied to all such lettings granted by that landlord.
The rules also provided that if the waiver was cancelled, a cancellation sum equal to the excess of any VAT reclaimed over VAT paid in connection with all properties which were subject to the wavier would be due.
While no new waivers could be exercised from 1 July 2008 onwards (as new VAT on property rules became effective on that date), pre-existing waivers continued to apply to lettings in property already owned by the landlord on 1 July 2008.
In addition, the waiver cancellation provisions continued to apply after 1 July 2008 and certain anti-avoidance rules to automatically cancel a waiver in certain circumstances were introduced e.g. where the last property subject to the waiver was disposed of by the landlord.
This proved difficult for some taxpayers as many properties were purchased at inflated prices in the early and mid-2000s (with significant VAT reclaims made on account of the exercise of a waiver) with the VAT subsequently paid on the letting or sale of those properties being substantially less, due to the subsequent downturn in the property market. As a result, many landlords were left with significant VAT liabilities which would be triggered when their waiver was cancelled.
This type of scenario was the focus of the Killarney Consortium case – see details below – where a taxpayer challenged the waiver cancellation rules’ compatibility with EU VAT law. The Tax Appeal Commission (“TAC”) and High Court both found in favour of the taxpayer in this regard.

Killarney Consortium v Revenue Commissioners

The details of the case and judgment are summarised below:

The Consortium reclaimed VAT on a property purchased in 2004, which was intended for development and taxable letting under a waiver. However, due to the market downturn, the property remained largely vacant, and the VAT collected on rents was much lower than the VAT reclaimed.
In 2017, the property was sold at a significant loss, and although VAT was chargeable on the sale, it still fell short of the VAT reclaimed. Revenue issued an assessment to recover this shortfall, arising due to the cancellation of the waiver.
The Consortium appealed, arguing that under EU VAT law, VAT deductions cannot be clawed back simply because input VAT exceeds output VAT, if the property was only used or intended to be used for taxable purposes. The TAC agreed with the taxpayer.
The High Court upheld the TAC’s decision on appeal from Revenue, confirming that where a business is fully engaged in taxable supplies (i.e. supplies of goods or services subject to VAT) it has a right to deduct input VAT incurred on purchases used for the purposes of those taxable supplies. This right to deduct arises irrespective of whether VAT charged on supplies exceeds VAT incurred on purchases.

Updated Revenue guidance on the waiver of exemption

Based on the updated guidance, it now appears that Revenue have accepted the High Court decision in the Killarney Consortium case and are not seeking to appeal the judgment to a higher court.

The updated guidance states the following:

Cancellation Amounts: As of 20 December 2024, Revenue will no longer collect cancellation amounts when a waiver is cancelled — whether the cancellation arises voluntarily or automatically.
Connected Tenants: Anti-avoidance rules which had been introduced for lettings subject to a waiver, between connected parties and requiring the rent to be set at a certain level to avoid an automatic waiver cancellation, continue to apply. However, the cancellation sum for cancellation in these circumstances is no longer enforced by Revenue with effect from 20 December 2024.

Practical implications

The updates to Revenue’s guidance give practical effect to the High Court decision in Killarney Consortium and are expected to have the following practical implications for businesses which have or had a waiver of exemption:

Greater flexibility for property disposal strategies – businesses may have retained properties which had been let subject to a waiver to avoid automatically triggering a waiver cancellation sum by their disposal. This disincentive is now removed giving greater flexibility in this regard.
Historic refund opportunities – while Revenue state that the change applies only to waivers cancelled on or after 20 December 2024, given the Killarney Consortium judgment, there may be grounds to pursue a refund of VAT historically paid in connection with a waiver cancellation. However, any such claims are likely to be subject to a careful review of the fact pattern and the statute of limitations of 4-years from the bi-monthly period in which the claim is made. Where such opportunities arise, timing is likely to be of the essence in making such claims.
Other VAT on property pitfalls remain – while the Killarney Consortium judgment and Revenue guidance update the position in relation to waiver cancellations, the VAT rules applying to property transactions remain complex. A clawback of VAT previously reclaimed may still arise under the capital goods scheme (“CGS”) rules. In addition, the rules in relation to the “landlord’s option to tax” lettings of property introduced on 1 July 2008 are also unaffected by this change.

We recommend that any landlord which has held or continues to hold a waiver of exemption assess their position. We are happy to support in this regard.