VAT Relief for Housing Construction

​QUESTION

To ask the Minister for Finance the first and full year cost of reducing VAT on residential construction from 13.5% to 9%.

REPLY

The VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law must comply. Under the VAT Consolidation Act 2010, the construction and supply of new residential housing, including renovation and repairs, is charged to VAT at 13.5%. 

I am advised by the Revenue Commissioners that it is tentatively estimated that introducing a 9% VAT rate specific to residential construction could cost in the region of €220m in the first year and €270m in a full year. This estimate is based on 2018 construction estimates using Revenue and third party data sources, including industry reports and property price register data. The estimate assumes no behaviour impact on consumer demand from a change to the VAT rate. 

Applying a lower VAT rate to the construction of new residential properties would result in different VAT rates between residential and non-residential construction services, as non-residential construction services cannot go below 12% under the EU Directives. This would be very difficult to administer and could lead to accidental or fraudulent underpayments of VAT.