What options do healthcare institutions have to deal with the (threatening) vacancy problem? And what are the points of attention for VAT and transfer tax? In this article, Govinda Kandhai, advisor at Baker Tilly, will answer these questions.
The healthcare sector faces major (financial) challenges. The costs of healthcare and housing have risen significantly, while reimbursements and budgets have not grown sufficiently. In these turbulent times, the healthcare sector is also confronted with fundamental developments, such as the recalibration of the Normative Housing Component (NHC) and a potential vacancy tax. These developments, among other things, cause vacancy costs to increase. Vacant spaces will have to be exploited in a different way to cover the increasing capital costs.
Threat of vacancy and staff shortage in healthcare
Costs in the healthcare sector have risen dramatically and have put healthcare institutions under great financial pressure. But what is even more alarming is the fact that despite the recent rejection of SP MP Sandra Beckerman’s motion to introduce a vacancy tax, the threat of such a measure still hangs over the healthcare sector.
The Association of Dutch Municipalities (VNG), for example, has already embraced the aforementioned motion. It can be deduced from this that there is support for the idea of a vacancy tax. The question arises as to what healthcare institutions can do about vacant or vacant spaces.
Demolition and new construction
One of the options that healthcare institutions can consider is the demolition of former healthcare locations, followed by the construction of new homes intended for rental or sale. The healthcare institutions can choose to transfer the location in its current state or after demolition. The transfer in the current built-up state will be exempt from VAT and subject to 10.4 percent transfer tax, while the transfer with demolition relief is subject to VAT and generally exempt from transfer tax. The choice for a VAT or transfer tax transaction depends on the way in which the healthcare institution in question will exploit the real estate to be built. It is essential to choose the most appropriate approach and minimize the tax burden on the real estate transaction.
Transformation into homes
Another approach is the transformation into care homes. This offers the opportunity to breathe new life into existing real estate, but also raises VAT-related issues. Many situations tend to make the transfer of the property, after renovation, subject to transfer tax (exempt, 2 percent or 10.4 percent), potentially reducing the tax burden. However, if the renovation results in essentially new construction, the delivery is subject to 21 percent VAT and is usually exempt from transfer tax. This can be advantageous if substantial high VAT costs have been incurred for, for example, the land, because the VAT charged is then deductible.
Additional services
Healthcare institutions are increasingly offering extensive residential service packages to tenants, with services such as personal alarms, cleaning, and meal provision. These additional services raise the question of whether it concerns ‘basic rental’ (usually VAT exempt) of a property or ‘rental plus’ (taxed with VAT). This distinction is important for the associated VAT consequences, including the applicable rate and the VAT deduction right. More details can be found in our article on rental-plus, but in short this means that healthcare institutions may have to charge VAT on reimbursements received, while they can (partially) deduct VAT on renovation costs.
Conclusion
Healthcare institutions are facing challenging times, but there are various strategies to address vacancy problems and minimize the tax burden. It is crucial that healthcare institutions consider at an early stage which option best suits their situation and that they take the right steps to keep their real estate profitable.
Sources:
News article Zorgvastgoed.nl
Articles Vastgoedjournaal.nl
Consequences of transfer tax
Vacancy motion
VAT consequences for basic rental