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Personal tax  •  Property  •  VAT

VAT Advice for building works – important changes for builders and renovators

By RJP LLP on 26 July, 2012

What else is new on the property tax front? Back on our own shores, other property tax changes to be aware of relate to the rules concerning the amount of VAT payable or reclaimable for property developments. If you are interested in developing a property or building a new home, it is worth taking expert VAT advice and understanding how you might be able to reclaim some of the VAT paid out before you start the project.

Change to zero rate relief rules for approved alterations

In the March 2012 Budget, the Government withdrew the zero rate VAT relief on alterations to listed buildings used for residential purpose and those owned by charities and religious institutions. This move was widely opposed by cultural and heritage groups and will be affecting a significant number of clients who own listed properties in the UK. According to HMRC, one of the reasons why the change was justified was because of the large numbers of people taking advantage of loopholes to build swimming pools, but in reality, they have not been able to substantiate this with real evidence. A further reason given for this change was the zero rate relief encouraged people to significantly alter protected buildings and therefore gave “a perverse incentive for change as opposed to repair” which is not in keeping with heritage values.

This zero rate relief for approved alterations for listed buildings was pretty much removed with immediate effect at the time of the Budget with some transitional arrangements for existing contracts.  However, there are still lots of opportunities for VAT planning to ensure you take advantage of VAT reliefs available to you.

For instance, it is possible to reclaim VAT paid out on qualifying building materials and conversion services if you build a new home or convert a building into a place to live. This rule applies whether you do the work yourself or have it done for you by a builder.

Remember there is a reduced VAT rate of 5% that is applicable to a lot of building work too.

If you are considering any of the following developments, or if you are a builder working on any of the following projects, you or your customers may qualify for either zero-rating or making a claim to HMRC.

  1. Building a new home or converting a non-residential building into new dwelling within the UK or Isle of Man. Under the rules, a new dwelling must be self contained and so does not include the addition of a granny annex or a building to be used for business purposes.
  2. If you purchase a building shell from a developer to be fitted out to your specifications it is also possible to reclaim the VAT provided the building is unfinished. Unfortunately, claims for patios or conservatories to enhance existing finished dwellings are not allowed!
  3. If a building has never been lived in as a home or has not been lived in for at least a 10-year period, then relief may be available. This rule also includes buildings, which may have had occasional residency as a temporary holiday home.

Don’t assume VAT rebates will offset building project costs

As VAT specialists, our advice is to ensure you discuss whether your project will qualify before commencing any works. Don’t make the assumption you can reclaim all your VAT because some supplies and services provided by the builder may already be zero-rated or charged at a reduced rate of VAT (5% for example). Do not factor this into the budget from the outset because you may not necessarily realise the savings you expected.

VAT Advice – special ‘health checks’ available

RJP is currently offering its clients the opportunity to take advantage of a special VAT ‘health check’ with a qualified VAT adviser. Please contact Simon Paterson if you would like to find out more information by emailing

If you would like to discuss any of the property tax issues discussed in more detail please contact Lesley Stalker by emailing




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