VAT can be an expensive element of a property renovation project, but many homeowners are unaware of the fact that significant VAT savings can be achieved in the right circumstances.
When bringing a property that has been empty for more than 10 years back into use as a dwelling, it may be possible to avoid almost all VAT costs.
In the right circumstances, VAT savings can be achieved in two stages:
- Most work carried out and materials supplied by a VAT-registered contractor should be charged at a reduced VAT rate of 5%.
- However there is no saving at this stage for any building materials you purchase yourself (e.g. from a supplier or building merchant). These are charged at the standard VAT rate of 20%.
If you plan to occupy the property yourself or to sell it:
- After the works have been completed, you can claim back from HMRC the VAT that you have paid for the refurbishment work.
- This includes both the reduced-rated VAT charged by your VAT-registered contractor and the standard VAT charged on any building materials that you have purchased yourself.
The 10-year rule requires that the empty dwelling has not been lived in for at least 10 years before the work started. Similar rules apply to the conversion of a previously non-residential property into a dwelling.
To maximise any available VAT savings, it is important to ensure that your project and the information you provide comply with the rules set out by the HMRC. It is important to get it right as it is difficult to reclaim overpaid VAT.