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HMRC internal manual

VAT Land and Property

Exceptions to the land exemption: what is the European basis for the exclusions from the land exemption?

Exclusions from ‘leasing or letting’ exemption

Article 135(2) of the Principal VAT Directive makes it compulsory for member states to exclude the following types of supplies from the exemption for ‘leasing or letting of immovable property’:

(a) provision of accommodation in the hotel sector or in sectors with a similar function

(b) premises and sites for the parking of vehicles

(c) permanently installed equipment and machinery, and

(d) hire of safes

The ‘tailpiece’ to Article 135(2) gives Member States the discretion to apply additional exclusions to the ‘leasing or letting’ exemption. The ECJ has ruled that the discretion granted under this tailpiece is a wide one.

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Exclusions from ‘supply of buildings’ and ‘supply of land’ exemptions

Article 135(1) (j) indicates that the exemption for the ‘supply of buildings’ does not apply to the supply of ‘new buildings’ (also see Article 12).

Article 135(1)(k) indicates that the exemption for the ‘supply of land’ does not apply to ‘building land’. However, Article 371 and Annex X, Part B(9) allows member states to continue to exempt the supply of building land if the exemption was in force on 1 January 1978.

Note: ‘Supply’ in the above context will normally mean freehold sale.