VAT update: Waiver cancellation sums no longer enforced by Revenue

On 23 June 2025, Revenue issued updated guidance confirming a significant shift in the VAT treatment of certain pre 2008 property lettings. 

Effective from 20 December 2024, Revenue will no longer seek to collect payment on the cancellation of a VAT exemption waiver. 

This change follows the High Court’s decision in Killarney Consortium v. The Revenue Commissioners.

What changed?

Prior to 1 July 2008, landlords letting property for less than 10 years could waive the VAT exemption that would otherwise automatically apply to such short-term lettings, allowing them to reclaim VAT on acquisition and development costs.

However, if the waiver was later cancelled, the legislation requires the landlord to calculate a cancellation adjustment and to make a payment (known as the ‘cancellation amount’) to Revenue. The cancellation adjustment is the difference between the VAT deducted by the landlord in respect of the acquisition or development of let properties, and the VAT accounted for by the landlord in respect of rents.

This created significant liabilities for landlords, particularly those who acquired property during the Celtic Tiger boom era and later sold at a loss. The Killarney Consortium case challenged this clawback mechanism under EU VAT law.

The Killarney consortium case

A consortium claimed a VAT deduction of €717,750 when acquiring a property in 2004, planning to let it and waive the VAT exemption. Upon selling the property in 2017 at a loss, €89,207 VAT was paid to Revenue. Revenue tried to recover the difference between input VAT claimed and output VAT on the rent and the sale of the property, but the court ruled this violated EU law principles - specifically the right to deduct VAT and fiscal neutrality.

The court upheld the consortium’s right to the original VAT deduction and ruled that Revenue cannot retrospectively reverse it or demand additional payment. While Revenue can regulate how the option to tax/waive exemption is implemented, once granted, it cannot be withdrawn to undermine VAT deduction rights.

The court examined whether Section 96(12) of the VAT Consolidation Act 2010 (which provides for the clawback/cancellation payment) is compatible with EU law, and found it unlawful. It interferes with the right to deduct VAT and violates fiscal neutrality by imposing undue VAT burdens on the taxpayer.

In legal terms, the court emphasised:

• VAT is meant to tax only the final consumer, with businesses neutral via deductions.
• Similar businesses must be treated equally.
• Section 96(12) disrupts these principles by retroactively clawing back VAT deductions, which is impermissible under EU law.

Both the Tax Appeals Commission and the High Court found in favour of the taxpayer, holding that:

• The right to deduct VAT arises from the intention to use the property for taxable purposes and not from the actual VAT collected.
• The cancellation sum imposed by Section 96(12) of the VATCA 2010 was incompatible with EU VAT law, particularly the principles of fiscal neutrality and legal certainty.

What’s happening now

From 20 December 2024, Revenue will not enforce cancellation sums when a waiver of exemption is cancelled. 

This is on the basis that the High Court ruled that this clawback breached EU principles of fiscal neutrality and the right to deduct VAT. Revenue has updated its guidance to reflect the ruling. 

Anti-avoidance rules for connected party lettings subject to the waiver remain in place, but cancellation sums arising in these circumstances will no longer be collected effective 20 December 2024.

The VAT position for ‘Opted to Tax’ properties and ‘Capital Good Scheme’ adjustments has not changed. This change is limited to waiver cancellation sums only.

What this means

• If you / your business previously held a waiver of exemption, you may wish to review your VAT history for potential refund opportunities (across the 4-year statute of limitations for refund claims).
• This change may also impact your property strategy going forward, as there may now be opportunity to dispose of property without the penalty of a waiver cancellation adjustment.
• We recommend seeking tailored advice to assess how this development affects your specific circumstances.

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