This is a simple and concise guide to understanding VAT on house conversions. Please note that there is different guidance in relation to new builds. Be aware that all projects are unique and some projects will not be eligible for tax reductions – please consult with your architect / quantity surveyor in relation to your specific tax liabilities prior to starting your project.
The DIY housebuilder scheme allows you to claim a VAT refund on conversion projects. You may be eligible to pay a reduced rate of VAT at 5% on many aspects of your project (instead of the standard rate at 20%) so this could be a huge saving that you don’t want to miss out on!
House conversions pictured are from architects on Design for Me. Click on the images to see their full profile and invite them for a consultation about your project!
What counts as a ‘house conversion’? under the VAT reclaim scheme?
According to HMRC, a new build eligible for VAT exemption is defined as:
‘A non-residential building that has either never been used for residential purposes or has not been used as such in the last ten years before the work started. The results of your project must be to convert that non-residential building into a dwelling.’*
- from the VAT431C VAT refunds for DIY housebuilders – Claim form for conversions.
Are there any situations where a house conversion would not qualify?
Yes, your new house will only be eligible for VAT exemption if:
- It’s for you and/or your family to live or holiday in.
- You do not intend to sell it on or let it out.
- It is separate from other buildings and self-contained. If, due to a term in the planning conditions it cannot be used or sold separately, it will not qualify for a VAT refund.
- It will not be used for business purposes.
- If you have purchased a completed conversion from a developer or builder you will not be able to claim further work on the property, e.g. a conservatory or new floor finishes.
Is a garage conversion VAT exempt?
For domestic garages you would need to show that it was not used to store motor vehicles for ten years before the work started.
What about other new buildings in the same grounds as our new house?
No, they will not qualify – with the exception of a garage, providing it is constructed at the same time as the main house and intended to be used at the same time as the house. So, unfortunately, your detached workshop/swimming pool/annexe will not be VAT exempt.
New builds pictured are from architects on Design for Me. Click on the images to see their full profile and invite them for a consultation about your project!
So my new house will be 15% cheaper?
Firstly, you should be aware that the scheme for materials that you have purchased operates as a refund process. You will need to pay for the building materials, including the standard rate of VAT, upfront and make the refund claim at the very end of the project. This will affect how much finance you will need to make available during the course of the project, so bear this in mind. However, there are some things that you will not be able to claim for…
Generally speaking, if you tipped your house up-side-down and shook it, anything that falls out would not usually qualify for VAT exemption. Neither does fitted furniture (except kitchens), some electrical and gas appliances, carpets or garden ornaments.
HMRC’s VAT431NB VAT refunds for DIY housebuilders claim form for house conversions gives a more comprehensive guide to what materials would and would not be included – refer to section three.
What about labour costs?
For eligible conversion projects, you should only be charged at a rate of 5% for construction services (labour) or the building materials they provide. This is because most (if not all) of their services and building materials are eligible for the reduced rating. In other words, they should not have to pay the full rate of VAT and so this should not be passed on to you. Make sure you discuss VAT in detail with your builder before you employ them, so they can manage their tax affairs to avoid unnecessary VAT payments during the course of the project.
Professional fees – e.g. architects, surveyors or engineers – do not qualify for VAT exemption. However, you may find that some small practices or sole traders are not VAT registered, which means they would not charge VAT on their fees in the first place.
What will I need to make the application?
I’d strongly recommend reading through the VAT refund claim form at the beginning of the project. This will help you plan for the eventual application. For example, you will need to keep all the invoices for building materials you are claiming for, and all these invoices will need to show the amount of VAT paid, shown as a separate figure. It’s also much more straightforward if all invoices are in your name, as otherwise you will have to explain why (on the claim form). When submitting the form you will need to provide:
- planning permission confirmation
- a completion certificate from Building Control.
When should I make the claim and how long will it take?
You should apply within three months of completing the work and can only claim once. Please note that you will need to provide the Completion Certificate issued by building control.
You’ll usually get the refund within 30 working days of sending the claim.
If you are still unsure about VAT liabilities in relation to your project, a good architect will be able to advise. Here at Design for Me we can match you with the best design pros for your project and arrange initial consultations for free. Use the form below to get started and we’ll be happy to help!
Emily Design for Me