Martin's Blog 15/07/10 - VAT - Getting it Back - Martin Roberts

Last week I was filming at a derelict bungalow which had been purchased at auction after a long period of it standing empty. The property was in pretty dismal condition but it did have some lovely features which could be restored and, most appealing, it stood in a sizeable plot of land with pleasant views. Our contributor was a first time renovator and at the time of filming, he was still debating whether or not to knock down the bungalow and start afresh or to restore the existing building. One of the factors influencing his thinking was the fact that he can reclaim VAT paid on new materials if he knocks down and starts again under the Government’s zero rated new build scheme. This prompted me to write about this VAT situation in more detail.

VAT on New Build Homes

Its true, one of the great advantages of undertaking a new build project - and one of the main reasons it can be so cost efficient - is the fact that materials and labour are zero rated for VAT. You will have to pay out VAT on your materials during the build but once it is complete you are able to make a VAT repayment claim.

This VAT reclaim is made when the house has been finished and for most people this is a very good time to receive some cash - as this money could be used for the finishing touches, such as garden materials or even furniture and fittings.

To make a claim, you must do this within 3 months of the building's completion (this is usually when you receive the "certificate of completion" that will be issued by your local planning authority). Once you put in a claim, it cannot be amended or added to because you have found another receipt – so it is vitally important that you keep all your paper work in good order throughout the project. You will need to detailed information such as receipts etc and invoices for goods and services that you have used to support your claim. Its worth getting yourself set up with a spreadsheet to record everything as you go along.

With a new build property, there is no VAT on labour so make sure you check all your invoices from your contractors to ensure that they are not charging you this.

VAT on Property Conversions

Like New Build homes, conversions are also zero rated but, unlike new build, you do have to pay out VAT on labour costs - although you can reclaim this at the end of the project.

VAT on Property Renovations

If the property has been unoccupied for more than 10 years, then the same zero rated VAT rule applies as with property conversions. You will need to provide evidence that the property hasn’t been lived in during the past 10 years by way of electoral roll, council tax or letter from an Empty Property Officer.

Once the project has started i.e. building work starts, you are able to live in the property without affecting this 10 year ‘unoccupied’ status.

If the property has been unoccupied for 3 years the rate of VAT falls to 5%.

If the property has been occupied (as was the case with the bungalow I visited), then in order to be eligible to reclaim VAT, the new purchaser would have to demolish it. Any cellars, basements and the slab at ground level may be retained but other than a single façade (or double façade on a corner site), the rest needs to come down.

There may of course be conditions or requirements in the planning permission that mean that certain parts of the property be retained i.e. if the property has a party wall.

So, our contributor has a dilemma – to pull down the existing bungalow and qualify for zero rated VAT on all materials and labour or to renovate and retain some of the nice features of the property. If he chooses to knock down and start again, he may be able to recycle some of the existing materials and use them in the new structure – so its not quite like starting from scratch.