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Q&As
Is my project eligible for 5% VAT reclaim?
We purchased a probate property back in June this year. It had been vacant since December 2022. A small amount of renovations had been completed before works had to be stopped because of planning complications surrounding the presence of bats in the property. Works will not re-start until January 2025 when planning, fingers crossed, will be granted. Only a small amount of works on the main house haven been completed, while two extensions requiring planning permission have not yet started. Could we class the project as a two stage renovation? As such, would it be possible to claim 5% VAT on the two extensions?
One Answer
Hi Jon,
Thank you for your question.
HMRC have in place the 431 Self-builders Scheme which allows you to reclaim the VAT on new builds and conversions (of properties from non-domestic to domestic) where they are to be your sole residency.
HMRC’s 708 Building and Construction Notice is guidance for contractors, subcontractors or developers. As in your situation where the property has been empty for two years or more as long as you meet the criteria as set out in, under the two year rule, VAT registered trades who carry out the building works are able to reduce the VAT charged from standard 20% rate down to 5%, but unfortunately there is no mechanism for you to reclaim this 5%.
Section 8 point 3.2 relates to the premises having been empty for two years and you need to meet the criteria let’s set out in Section 8.3.4 where either.1 or .2 needs to be satisfied.
8.3.1 The 2-year rule
You can only reduce rate the renovation or alteration if, in the 2 years immediately before renovation works start, the qualifying residential premises has not been lived in. If the premises is a building (or part of a building) which, when last lived in, was 1 of a number of buildings on the same site used together as a unit for a relevant residential purpose, then none of the buildings making up the original unit must have been lived in during the 2 years immediately before your work starts. So you cannot, for example, reduce rate the renovation or alteration of a dormant building within the grounds of an operational home or institution.
8.3.2 Proof that the premises has been empty for 2 years
If you reduced-rated your supply, you may be required to show that the building has not been lived in during the 2 years immediately before you start your work. Proof of such can be obtained from Electoral Roll and Council Tax records, utilities companies, Empty Property Officers in local authorities, or any other source that can be considered reliable.
If you hold a letter from an Empty Property Officer certifying that the property has not been lived in for 2 years, you do not need any other evidence. If an Empty Property Officer is unsure about when a property was last lived in, they should write with a best estimate. HMRC may then call for other supporting evidence.
8.3.4 People living in the premises whilst you carry out the work
There are 2 empty house rules for situations when people are living in the premises while refurbishment work is being carried out. The first relates to all qualifying premises (read paragraph 8.2).The second only relates to ‘single household dwellings’.
First rule
If the ‘qualifying residential premises’ have not been lived in during the 2 years immediately before your work starts, all of your work is reduced-rated. This is the case even if the premises start to be lived in again while you are carrying out your work. The occupier must move in on a day after you start your work. But if, when your work starts, the premises are already being lived in, or have been lived in during the previous 2 years, all of your work is standard-rated.
Second rule
You can reduce rate your services of the refurbishment or alterations to a ‘single household dwelling’ where all the following conditions are met:
1. The 2 years immediately before the occupier acquired the dwelling it had not been lived in.
2. No renovation or alteration had been carried out in the 2 years before the occupier acquired the dwelling (you can ignore minor works that were necessary to keep the dwelling dry and secure).
3. Your services are supplied to the occupier ― so if you are a subcontractor you must standard rate your work.
4. Your services take place within 1 year of the occupier acquiring the dwelling.
This exception to occupation will not apply to the renovation or alteration of multiple occupancy dwellings or buildings intended for use for a relevant residential purpose.
Good luck with your project!
Many thanks,
Kathy Tisdale (VAT reclaim expert)