Insights 25.4.22 Author: Sandy Cochrane

5% VAT on certain residential property conversions and refurbishments, do you qualify?

Insights 25.04.2022 Author: Sandy Cochrane

From the moment the Government announced restrictions in early 2019 in an attempt to control the spread of Covid-19, many of us were discouraged from or unable to travel to work, to second homes or in some instances, back to a UK home from overseas. There are therefore many scenarios where, due to Covid-19, there have been empty properties over this period.

Since the world has started to return to ‘normal’, there has been a surge in extensions and property conversions right across the UK where people want to create an office space, rent out a second property for ‘staycations’ or because they’ve been physically unable to do building work on a property until recently. An example here may be where a property has been inherited, but left empty during the outbreak of Covid-19.

There may be works that qualify for the reduced rate of VAT at 5%, giving homeowners a potential saving of 15% VAT that would have been an absolute cost were they not able to recover the VAT charged, and which could make such building work possible, especially with the rise in the cost of living.

We urge anybody who is to undertake works to properties that have been empty for two years or more,  or who is looking to carry out some building work on their home, to speak to us to see if they qualify for the reduced VAT rate of 5% on the cost of the renovation. This 15% reduction in VAT is often overlooked and will clearly reduce the budget, quite dramatically, for any such work carried out.

There are similar rules when converting property from a single household into multiple flats or vice versa, as well as certain conversions of commercial property into residential, which again due to the pandemic, we are seeing more of.

There are of course criteria to qualify for the reduced VAT liability. We have helped both contractors and private individuals establish whether or not certain projects qualify. If contractors have an understanding of when the rate of VAT can be reduced, offering a further 15% ‘discount’ can offer them significant competitive advantage.

For example, for works done in respect of a house that has been empty for two years, under the basic rule for ’empty home condition’, the house must not have been lived in during the period of two years ending when the works start. Under this rule, the house must normally still be empty when the works start. There are various issues around the two-year limit, and the meaning of ‘lived in’ for these purposes, accordingly care does need to be taken.

For certain property conversions, i.e. from a house into a number of flats, it will be important to establish what falls within ‘qualifying works’ when undertaking a ‘qualifying conversion’ to ensure VAT is being charged at the correct and reduced rate.

What next?

We strongly recommend you speak to us as there are, as always, grey areas and we can help you establish if it is possible to make use of this significant saving. Please contact Sandy Cochrane with any questions.