5% VAT  ON CONVERSION AND RENOVATION

VAT  ON RENOVATION WORK-  5% VAT 

If a dwelling  has been  empty for two years or more  the renovation work   can  be carried out at the reduced VAT  rate of  5%. 

1. Where  a dwelling has been continuously empty for two years immediately before the work starts the contractor can charge 5% for the supply and fit of building materials in the course of the renovation. It is recommended that proof is obtained that the property has been empty for the required time from  the local authority or utility companies. Illegal occupation by squatters can be ignored.

2.  The more  complicated situation arises from a VAT point of view where the property is lived in whilst the work is being done. Contractors who have already started their works can continue to apply the reduced rate even if the property begins to be occupied while the work is ongoing.  However, if other contractors begin their work after occupation takes place, for their work the main condition will not be met, so a further  condition needs to be considered.  The  reduced-rate can be applied provided the dwelling has been continuously empty in the two years immediately before purchase, which is a different test to the one in No.1 above. There are however, three further  conditions to satisfy:

·    No renovation or alteration had been carried out in the two years prior to  the current occupier acquiring  the dwelling (minor works that were necessary to keep the dwelling dry and secure can be ignored);

·   the services are supplied to the occupier (so subcontractors must standard-rate to the main contractor ), and

·    the renovation work  must take place within one year of the occupier acquiring the dwelling.

This will arise where a client  buys a house which has been empty for two years, the client  moves in and the works are carried out in the year following the purchase.

Listed building- Zero rating

The zero-rate for approved alterations of listed dwellings was removed in October 2012 so that is no longer a consideration.  There are instances  where a  the sale of a substantially renovated building can  be zero rated.

Conversion of a dwelling

There is also a 5% reduced VAT rate that applies  on  conversion of a dwelling  other than the above, meaning the  two year  empty period  is not relevant.  This will apply to conversion work on a dwelling  where the number of rooms  is being increased or decreased.