The short-term letting of a holiday home is subject to VAT. You must pay VAT on the rent at the reduced rate (9%). You may deduct the VAT you paid when purchasing the holiday home, as well as the VAT on the costs associated with the property, to the extent that you operate the property as a VAT-registered business.
Heavy use?
If you let out the holiday home and pay a fee for this, this constitutes a VAT-taxable transaction.
However, when you use the holiday home yourself, you cannot, of course, pay yourself any remuneration. Consequently, this does not constitute a supply subject to VAT. Under the law, the private use of goods is deemed to be a supply subject to VAT, but this does not apply to the private use of immovable property.
Vacancy rate
It is usually not possible to let your holiday home all year round. The property therefore stands empty for a certain period of time. For VAT purposes, this raises the question of whether the period during which the property is vacant can be allocated to the VAT-taxable letting. If that is the case, you can deduct a larger proportion of the VAT on the purchase of the property and on the associated costs.
Proportional allocation
Arnhem-Leeuwarden Court of Appeal has recently decided that the period during which a holiday home stands vacant must be allocated both to the periods during which the property is let subject to VAT and to the periods of private use.
The Court derives this from the management and letting agreement entered into by the owner of the holiday home. This agreement stipulates that the owner may use the property himself during periods when it is unoccupied. Consequently, during periods when the property is unoccupied, it is not (exclusively) available for use subject to VAT.
The terms of the agreement(s) you enter into with a view to letting your holiday home can therefore allow you to influence the extent of your VAT deduction to some extent in your favour.
Old law
Incidentally, the Court’s ruling relates to the old law. At present, the private use of property is not regarded as a notional supply. The VAT payable on the purchase of the property may not be deducted to the extent that the property is used for private purposes (or for exempt activities).
In the year to which the Court’s ruling relates, private use was indeed taxed. The allocation of the period during which the property stood vacant was relevant for determining the tax base. We see no reason why the Court’s ruling should not also be authoritative under current law.