Historically, the government had been restricted by EU VAT law from reducing the VAT rate on housing. In 2022, a Directive was adopted (Council Directive (EU) 2022/542) to amend the EU VAT Directive to give Member States more autonomy in relation to the setting of VAT rates. One of the stated intentions of the directive was to enable Member States to pursue objectives of general interest. More specifically, the amended directive permitted Member States to apply a reduced rate of between 5% and 15% to “the supply and construction of housing as part of a social policy, as defined by the Member States.”
Finance Bill 2025 as initiated provided that the 9% VAT rate would apply to the sale of apartments. The original scope of the rate contained a significant limitation as it excluded forward fund arrangements whereby the construction of an apartment block is arranged by an initial sale of a site and separate provision of construction services. Forward funding represents a significant portion of how apartment development is financed in Ireland and therefore this represented a significant limitation.
As a result of further consideration by the Department of Finance, a financial resolution was introduced on 26 November 2025 to extend the 9% rate to include the sale of sites and construction services to develop apartments/apartment blocks (i.e. forward funding arrangements). The extension of the rate to include such arrangements has been included in the enacted Finance Act and this ensures the VAT rate aligns with the practical way in which these developments are arranged.
Scope of the VAT rate reduction
The enacted Finance Act amends the VAT Consolidation Act 2010 to apply the 9% VAT rate to the supply of immovable goods as part of a social policy which are or when completed will be:
Apartments and apartment blocks
Of particular importance in the above is the definition of an ‘apartment block’ as that is central to the question of whether the 9% VAT rate applies. In this respect, ‘apartment block’ is defined as: “multi-storey building that comprises, or will comprise, not less than 3 apartments with grouped or common access”
As such, it is considered that there are several conditions to be satisfied in order for the property to be considered an apartment block and for the sale of the apartment or the block itself to qualify for the 9% rate:
It is noteworthy that ‘apartment’ is not defined in the legislation. Therefore, it should be given its ordinary meaning (i.e. a set of rooms designed for use as a dwelling). Helpfully, Revenue guidance provides for the same and notes that the term apartment can include:
It is also noteworthy that the requirement in the legislation for the block to contain at least 3 apartments with grouped or common access doesn’t appear to preclude other apartments in the block who do not have common or group access from qualifying for the 9% VAT rate. This approach seems to be confirmed by Revenue guidance stating that the fact that an apartment may have its own door does not preclude it from coming within the 9% rate subject to the other criteria being satisfied.
It is important that a cautious approach is taken in terms of identifying whether the 9% rate applies or not and careful consideration of the building itself, and design plans for buildings under construction, will need to be undertaken.
Residential purposes
As noted above, the legislation requires that the apartment/apartment block must be used or intended to be used for residential purposes. Revenue guidance provides that areas such as the following are considered to be for residential purposes:
Interestingly, Revenue guidance carves out from the 9% rate areas such as gyms, work hubs or pools, even if for the exclusive use of residents. It is likely that there will be other common/shared areas for residents use and this will require thought in terms of whether they should be considered residential. From a practical perspective, a private home can contain facilities like a gym or a pool, and these would ordinarily be regarded as part of the residential property. On that basis, one might consider whether the same classification should apply to similar facilities provided within an apartment complex where they are for exclusive resident use.
For properties that contain both commercial and residential units, apportionment will be required and shared areas should also be apportioned (e.g. based on floor space).
Given that the VAT rate reduction is only recently enacted, there are still some uncertainties that will need to be considered further:
Conclusion
The VAT rate reduction for apartments is well received and should have a significant impact for incentivising the development of apartments. The guidance provides much needed clarity in several areas, but it is inevitable that there will be interpretation challenges, in particular, when determining whether a unit qualifies or not, and in the case of modern apartment developments, the treatment of shared amenity spaces which are increasingly a feature of modern apartment developments.
Given the values involved in property transactions, applying the incorrect VAT rate on such supplies can lead to an exposure to substantial VAT liabilities together with interest and penalties.