(1)(a) This section applies to immovable goods-

(i) which have been developed by or on behalf of the person [supplying]¹ them, or

(ii) in respect of which the person [supplying]¹ them was, or would, but for the operation of section 3(5)(b)(iii), have been at any time entitled to claim a deduction under section 12 for any tax borne or paid in relation to a [supply]¹ or development of them.

[(b) In this section "interest", in relation to immovable goods, means an estate or interest therein which, when it was created was for a period of at least ten years or, if it was for a period of less than ten years, its terms contained an option for the person in whose favour the interest was created to extend it to a period of at least ten years, but does not include a mortgage, and a reference to the disposal of an interest includes a reference to the creation of an interest, and an interval of the type referred to in subsection (2A) shall be deemed to be an interest for the purposes of this section.]²

[(c) Where an interest is created and, at the date of its creation, its terms contain one or more options for the person in whose favour the interest was so created to extend that interest, then that interest shall be deemed to be for the period from the date of creation of that interest to the date that that interest would expire if those options were so exercised.]³

(2) Subject to ...¹ paragraphs (c), (d), (e) and (f) of section 3(1), section 19(2) and subsections (3), (4) and (5), a [supply]² of immovable goods shall be deemed, for the purposes of this Act, to take place if, but only if, a person having an interest in immovable goods to which this section applies disposes [(including by way of surrender or by way of assignment)]³, as regards the whole or any part of those goods, of that interest or of an interest which derives therefrom.

(2A) Where the surrender of an interest in immovable goods is chargeable to tax, and those goods have not been developed since the date of creation of that interest (hereafter referred to in this subsection as a "surrendered interest"), and the person to whom the surrendered interest was surrendered subsequently disposes, as regards the whole or any part of those goods, of an interest or of an interest which derives therefrom on a date before the date on which the surrendered interest would, but for its surrender, have expired, then that disposal shall be deemed to be a supply of immovable goods, for the purposes of this Act, and where the interest (hereafter referred to in this section as a "subsequent interest") disposed of is for a period which extends beyond the date on which the surrendered interest would, but for its surrender, have expired, the disposal of that subsequent interest shall be treated, for the purposes of this Act, as if it were the disposal of an interest for the period equal to the interval between the date of the disposal of the subsequent interest and the date on which the surrendered interest would, but for its surrender, have expired (a period hereafter referred to in this section as an "interval"), and where such interval is for a period of less than ten years, that disposal shall be treated as a supply of immovable goods to which subsection (6) applies:

Provided that the person, who disposes of a subsequent interest in which the interval is for a period of less than ten years, may opt, subject to and in accordance with regulations, if any, to have that disposal treated as a supply of immovable goods to which subsection (6) does not apply.

(2B) Where a person disposes of a subsequent interest in such circumstances that such person retains the reversion on the interest disposed of, then-

(a) if the subsequent interest expires on or after the date on which the surrendered interest which enabled that person to dispose of a subsequent interest (hereafter referred to in this subsection as "the surrendered interest") would, but for its surrender, have expired, the provisions of subsection (4) shall not apply to that reversion;

(b) if the subsequent interest expires prior to the date on which the surrendered interest would, but for its surrender, have expired, the provisions of subsection (4) shall apply to that reversion and that reversion shall be deemed for the purposes of subsection (4) to be for the period between the date of expiry of the subsequent interest and the date on which the surrendered interest would, but for its surrender, have expired.

(2C) Where the surrender of an interest in immovable goods is chargeable to tax, and those goods have not been developed since that interest was created and the person to whom the interest that was surrendered surrenders possession of those goods or any part thereof, on a date before the date on which the interest that was surrendered would, but for its surrender, have expired, in such circumstances that that surrender of possession does not constitute a supply of goods, that surrender of possession shall be deemed for the purposes of section 3(1)(f), to be an appropriation of the goods or of the part thereof, as the case may be, for a purpose other than the purpose of that person's business except where such surrender of possession is made-

(a) in accordance with an agreement for the leasing or letting of those goods where the person surrendering possession is chargeable to tax in respect of the rent or other payment under the agreement, or

(b) in connection with a transfer which, in accordance with section 3(5), is deemed, for the purposes of this Act, not to be a supply.

(3)(a) [Subject to paragraph (aa) and (b)]¹, where a person having an interest in immovable goods to which this section applies surrenders possession of those goods or of any part thereof in such circumstances that the surrender does not constitute a [supply]² of the goods for the purposes of subsection (2), the surrender shall be deemed, for the purposes of section 3(1)(f), to be an appropriation of the goods or of the part thereof, as the case may be, for a purpose other than the purpose of his business.

[(aa) Where a person having an interest in immovable goods to which this section applies surrenders possession of those goods or of any part thereof in such circumstances that the surrender does not constitute a supply of the goods for the purposes of subsection (2), the provisions of paragraph (a) shall not apply when this paragraph and paragraph (ab) take effect pursuant to section 99(2) of the Finance Act 2005.

(ab) Subject to paragraph (b), where a person having an interest in immovable goods to which this section applies surrenders possession of those goods or any part thereof in such circumstances that the surrender does not constitute a supply of the goods for the purposes of subsection (2), that person shall be liable for an amount, in this paragraph referred to as a deductibility adjustment, which shall be payable as if it were tax due by that person in accordance with section 19 for the taxable period in which the surrender occurred, and that deductibility adjustment shall be calculated in accordance with the following formula:

T x (Y - N)
Y

where-

T is the amount of tax which the person who surrenders possession of the goods was entitled to deduct in accordance with section 12 in respect of that person's acquisition of the interest in and development of the goods the possession of which is being surrendered,

Y is 20 or, if the interest when it was acquired by the person who surrenders possession of the goods was for a period of less than 20 years, the number of full years in that interest, and

N is the number of full years since that person acquired the interest in the immovable goods being surrendered or, if the goods were developed since that interest was acquired, the number of full years since the most recent development:

but if that N is greater than that Y, such deductibility adjustment shall be deemed to be nil.]³

(b) This subsection shall not apply to-

(i) any such surrender of possession made in accordance with an agreement for the leasing or letting of the goods if the person surrendering possession is chargeable to tax in respect of the rent or other payment under the agreement, or

(ii) a surrender in connection with a transfer which, in accordance with section 3(5), is declared, for the purposes of this Act, not to be a [supply]².

(3A)(a) Where a person having an interest in immovable goods to which this section applies surrenders possession of those goods or of any part of them by means of a disposal of that interest or of an interest which derives from that interest, and where the value of the interest being disposed of is less than its economic value then for the purposes of this Act such disposal-

(i) shall be deemed not to be a supply of immovable goods for the purposes of subsection (2), but

(ii) shall be deemed to be a letting of immovable goods to which [paragraph 11 of Schedule 1]¹ applies.

(b) This subsection does not apply to the disposal of a freehold interest.

(c) Where a person establishes to the satisfaction of the Revenue Commissioners that the value of an interest in immovable goods being disposed of by such person is less than the economic value of those immovable goods because of an unforeseen change in market conditions affecting the value of that interest since such person acquired and developed those goods, then the Revenue Commissioners may determine that that disposal be treated as a supply of immovable goods for the purposes of subsection (2).

(d) For the purposes of this subsection-

"economic value", in relation to an interest in immovable goods being disposed of, means [the total amount on which tax was chargeable]² to the person disposing of that interest [in respect of or in relation to]³ that person's acquisition of that interest and [in respect of or in relation to]³ any development of those immovable goods by or on behalf of that person since that acquisition; but if-

(i) there was no development of those immovable goods by or on behalf of that person since that person's acquisition of that interest, and

(ii) that person disposes, including by way of surrender or assignment, of an interest (in this subsection referred to as a "lesser interest") which is derived from the interest which that person acquired (in this subsection referred to as a "greater interest"), and

(iii) the lesser interest is an interest of not more than 35 years,

then the economic value of the lesser interest shall be deemed to be the amount calculated in accordance with the following formula:

E  x  N1
        N2

where-

E is the economic value of the greater interest,

N1 is the number of full years in the lesser interest, and

N2 is the number of full years in the greater interest, but if the number of full years in the greater interest exceeds 35 or if the greater interest is a freehold interest then N2 shall be deemed to be equal to 35,

but where-

(I) the disposal of the lesser interest is not a disposal by way of surrender or assignment, and

(II) the amount so calculated is less than 75 per cent of the economic value of the greater interest,

then the economic value of the lesser interest shall be deemed to be 75 per cent of the economic value of the greater interest;

"the value of an interest being disposed of" means the amount on which tax would be chargeable in accordance with section 10 if that disposal were deemed to be a supply of immovable goods in accordance with subsection (2).

(4) Where a person having an interest in immovable goods to which this section applies disposes, as regards the whole or any part of those goods, of an interest which derives from that interest in such circumstances that he retains the reversion on the interest disposed of, he shall, in relation to the reversion so retained, be deemed, for the purposes of section 3(1)(f), to have made an appropriation of the goods or of the part thereof, as the case may be, for a purpose other than the purpose of his business.

(5) Where a person disposes of an interest in immovable goods to another person and in connection with that disposal a taxable person enters into an agreement with that other person or person connected with that other person to carry out a development in relation to those immovable goods, then-

(a) the person who disposes of the interest in the said immovable goods shall, in relation to that disposal, be deemed to be a taxable person,

(b) the disposal of the interest in the said immovable goods shall be deemed to be a supply of those goods made in the course or furtherance of business, and

(c) the disposal of the interest in the said immovable goods shall, notwithstanding subsection (1), be deemed to be a disposal of an interest in immovable goods to which this section applies.

(6)(a) Tax shall not be charged on the supply of immovable goods-

(i) which were used in such circumstances so that the person making the supply had no right to deduction under section 12 in relation to tax borne or paid on the acquisition or development of those goods, or

(ii) which have been occupied before the specified day and had not been developed between that date and the date of the supply.

(b) Paragraph (a) does not apply to a supply of immovable goods, being goods-

(i) to which subsection 5 applies, or

(ii) which were acquired by the person making the supply as a result of a transfer in accordance with section 3(5)(b)(iii) and if tax had been charge able on such transfer the person making the supply would have had a right to deduction under section 12 in relation to such tax.

(7) The provisions of section 8(3) shall not apply in relation to a person who makes a [supply]¹ of goods to which this section applies.

(8)(a) Where tax is chargeable in relation to a supply of immovable goods which is a surrender of an interest in immovable goods or an assignment of an interest in immovable goods to-

(i) [an accountable person]¹,

(ii) a Department of State or a local authority, or

(iii) a person supplying goods of a kind referred to in paragraph (a) of the definition of "exempted activity" in section 1 or services of a kind referred to in [paragraphs 1, 5(4), 6, 7, 8, 11 and 14(3) of Schedule 1]², in the course or furtherance of business,

then, the person to whom those goods are supplied shall be accountable for and liable to pay the tax chargeable on that supply and the said tax shall be payable as if it were tax due by that person in accordance with section 19 for the taxable period within which the supply to the person took place and for these purposes the person to whom the goods are supplied shall be [an accountable person]¹ and the person who made the surrender or assignment shall not be accountable for or liable to pay the said tax.

(b) Notwithstanding subsection (2A)(a) of section 8, if the supply referred to in paragraph (a) is to a Department of State or a local authority, that Department of State or local authority shall be accountable for and liable to pay the tax referred to in that paragraph.

(c)(i) A surrender or assignment of immovable goods referred to in paragraph (a) shall be treated as a supply of goods made by the person to whom the goods are supplied.

(ii) Upon the surrender or assignment of immovable goods referred to in sub-paragraph (i), the person who makes the surrender or assignment shall issue a document to the person to whom the surrender or assignment is made indicating the value of the interest being surrendered or assigned and the amount of tax chargeable on that surrender or assignment. [This subparagraph shall not apply where the person who makes the surrender or assignment is obliged to issue a document in accordance with section 4C(8)(a) to the person to whom that surrender or assignment is made.]³

(iii) For the purposes of section 12, that section shall apply as if this paragraph had not been enacted.

(9)(a) Where an interest in immovable goods is created in such circumstances that a reversion on that interest (hereafter referred to in this subsection as a "reversionary interest") is created and retained, then any subsequent disposal to another person of that reversionary interest or of an interest derived entirely therefrom shall be deemed to be a supply of immovable goods to which subsection (6) applies, provided that, since the date the first-mentioned interest was created, those goods have not been developed by, on behalf of, or to the benefit of, the person making such subsequent disposal: but the provisions of this subsection shall not be construed as applying to a disposal of an interest which includes an interval.

(b) The Revenue Commissioners may make regulations specifying the circumstances or conditions under which development work on immovable goods is not treated, for the purposes of this subsection, as being on behalf of or to the benefit of a person.

(10)(a) Where a disposal of an interest in immovable goods is chargeable to tax and the person who acquires that interest is obliged to pay rent to another person (hereafter referred to in this subsection as "the landlord") under the terms and conditions laid down in respect of that interest, the landlord-

(i) shall, notwithstanding the provisions of section 8, be deemed not to be [an accountable person]¹ in respect of transactions in relation to those immovable goods other than-

(I) supplies of those immovable goods on which tax is chargeable in accordance with the provisions of this section, or

(II) supplies of other goods or services effected for consideration by the landlord, or

(III) post-letting expenses in respect of that interest,

(ii) shall not be entitled to deduct tax in respect of transactions in relation to those immovable goods other than-

(I) supplies of those immovable goods on which tax is chargeable in accordance with the provisions of this section other than subsection (4), or

(II) supplies of other goods or services effected for consideration by the landlord, or

(III) post-letting expenses in respect of that interest,

(iii) shall be deemed, where that landlord is not the person who made the disposal of the interest, to be [an accountable person]¹ in respect of post-letting expenses in relation to that interest and shall in relation to those post-letting expenses be entitled to deduct tax, in accordance with section 12, as if those post-letting expenses were for the purposes of the landlord's taxable supplies.

(b) For the purposes of this subsection post-letting expenses in relation to an interest in immovable goods are expenses which the landlord incurs-

(i) in carrying out services which the landlord is obliged to carry out under the terms and conditions of the written contract entered into on the disposal of the interest which was chargeable to tax but does not include transactions the obligation to perform which is not reflected in the consideration on which tax was charged on the disposal of that interest, or

(ii) which directly relate to the collection of rent arising under the contract referred to in subparagraph (i), or

(iii) which directly relate to a review of rent where the terms and conditions of the contract referred to in subparagraph (i) provide for such a review, or

(iv) which directly relate to the exercise of an option to extend the interest or to exercise a break-clause in relation to that interest where the terms and conditions of the contract referred to in subparagraph (i) provide for such an option or such a break-clause,

but do not include any expenses relating to goods or services of the type specified in section 12(3).

(11) Subject to section 4C the other provisions of this section, apart from subsections (9) and (10), shall not apply as regards—

(a) a disposal of an interest in immovable goods, or

(b) a surrender of possession of immovable goods,

which occurs after 1 July 2008. Subsection (9) shall apply only as respects a reversionary interest created prior to 1 July 2008. Subsection (10) shall apply only as respects an interest which is disposed of prior to 1 July 2008.