Q&A: VAT on property renovations

Croner VIP Tax Team

In this week’s Q&A, David Smith, adviser at Croner VIP Tax Team, explains the rules on VAT claims when renovating an empty property.

Q. My client has purchased a residential property which has been derelict for over 10 years. He wants to renovate the property and resell once the work is completed. What are the VAT implications?

A. Where work is carried out to an eligible dwelling that has not been lived in during the two years immediately before the work starts the reduced rate of 5% can be applied to the construction services. VAT Notice 708 section 8 sets out the conditions that must be met.

Evidence will be required to show the property has been empty for two or more years and section 8.3.2 sets out examples of proof such as electoral roll and council tax records, utilities companies, empty property officers in local authorities, or any other source that can be considered reliable.

Section 8.4 sets out the services covered by the reduced rate. The work can include repair, maintenance (such as redecoration), or improvement (such as the construction of an extension or the installation of double glazing) carried out to the fabric of the dwelling during the renovation of the empty property.

Not all services are covered by the reduced rate. For example, the installation of goods that are not building materials, such as carpets or fitted bedroom furniture, the erection and dismantling of scaffolding, the hire of goods, and the provision of professional services are subject to standard rated 20% VAT.

If the residential property has not been lived in for at least 10 years immediately before being sold, then the sale will be zero-rated as the first grant of a major interest in a newly converted dwelling. See section 5.3.

Consequently, input tax incurred on the renovation and selling costs can therefore generally be recovered (subject to the normal rules).