Relevant Contracts Tax (RCT) update: Acquisition of turnkey properties

Clarity emerges for construction and social housing sectors

Revenue has released an important update to its Relevant Contracts Tax (RCT) Tax and Duty Manual regarding the acquisition of turnkey properties. This guidance brings welcome clarity to a previously uncertain area, particularly for those in the construction and social housing sectors. We’re here to help you understand the implications and navigate these changes with confidence.

RCT treatment of turnkeys

Revenue’s updated guidance offers a clear distinction: contracts solely for acquiring completed properties, without any provision for construction operations, fall outside the scope of RCT. However, if the contract mentions the contractor or vendor carrying out construction operations, RCT procedures must be applied to the portion of the consideration relating to those operations.

This clarity allows you to move forward with greater certainty in your property transactions, but how do you determine which part of your contract is subject to RCT? 

Apportionment consideration

Revenue now requires principal contractors to apportion the consideration for contracts covering both land supply and construction operations where a single contract price covers both the supply of land and construction operations. RCT and VAT reverse charge will apply only to the amount attributable to construction services, not to the land sale portion.

This change represents a departure from previous guidance, where RCT applied to the full contract value for mixed contracts. While Revenue hasn’t specified an apportionment method, we recommend using an arm’s length basis to ensure compliance.

Words matter: Identifying construction operations in contracts

Certain phrases or clauses in a contract can indicate that construction operations are being carried out, triggering RCT requirements. These might include:

• The employer intends to construct housing units on the site as per the plans (note: the contract defines the principal, approved housing body or local authority as the employer);

• The contractor agrees to carry out the works according to the plans for the agreed contract price (note: the contract defines the construction company as the contractor);

• The contractor will, for the contract price, build and fully complete the works on the site for the employer in a good, substantial and workmanlike manner, in accordance with the plans;

• The “works” are defined as the construction of units as per the planning permission and specified plans, including all necessary ancillary works and services. This encompasses everything required for the use and enjoyment of the units, ensuring they are habitable when completed. It also includes works to complete all associated common areas, roads, footpaths, access routes, infrastructural works and services benefiting the site to a standard acceptable for taking charge by the local authority; or

• Contract price is defined as the sum of €X covering both the cost of the works and the assurance of the units. 

If such language is present, the principal contractor must notify Revenue of the contract and all related payments through the online e-RCT system before making any payments.

Key actions businesses can take today

Contract review

It is important that each contract is reviewed and considered on a case-by-case basis to determine if there are any similar wording/terms included in the contract that could bring the contract within the scope of RCT.

Advance consideration of arrangements

There are many different arrangements/contract formats that may be used to acquire turnkey properties. As the penalties for non-compliance with the RCT procedures are severe, all arrangements for the purchase of turnkey properties should be reviewed and considered in advance to determine the correct RCT and VAT treatment applicable.

We’re here to help you

Navigating the complexities of RCT can be challenging, but you don’t have to do it alone. Our team of RCT experts brings extensive knowledge and experience across all sectors. We’re ready to work with you, ensuring your organisation stays compliant and confident in its property transactions. Let’s start the conversation today.