5% VAT rate on rennovation/extension help - empty homes
Discussion
Hi all,
Hoping someone, somewhere, may have experience of reduced VAT on extensions. Or might be able to point in the direction of an expert I can pay for some more formal consultation.
That being said, in the event anyone here has any knowledge here, would really appreciate if you think the below is all above board and plausible.
Buying a new property which has been empty for 3 years, deceased estate. Plan is to renovate and double the size of the house. This is to live in afterwards and not solely development.
I’m looking to project manage the build and appoint various trades to it.
Due to the property being empty for over 2 years, VAT can be charged at reduced rate of 5% instead of 20%. However, this only applies to the builder starting their work before the property in lived in. I plan to live in the property almost immediately after I’ve moved in. I will obviously allow some works to commence to satisfy this VAT rule.
The issue is that if I want a kitchen for example to be charged at 5% VAT, the kitchen would need to start pre anyone living in the property, which would not be the case.
The normal “easy” way to do this, is appoint a sole building contractor to do it. He does everything, and provided his first works start pre me spending a night, the rule is satisfied. But I don’t want to appoint a single builder to do it all, as will likely cost me more than the VAT saving as I was hoping to take advantage of sourcing contractors and materials myself.
My next option I’m looking at is doing the above, but creating my own LTD company to be the sole building contractor, and run it all through the business.
E.g. me as a private individual appoints Phil builders LTD (in which I’m the sole director) who will do all works. Phil builders LTD agree to charge me 5% as Phil builders LTD will start their works before I move in. They buy all materials and appoint sub contracts paying 20% VAT, who then claim this back from the VAT man.
For example of stage 1 – foundations.
Phil builders LTD appoints a sub contract to do all the foundations at the cost of £10k + 20 % vat. £12k.
Phil builders LTD claims the 20% vat back from tax man.
Phil builders LTD then charges me as private individual £10k + 5% VAT, £10k.5 for this stage of the build.
Then rinse and repeat for the whole build. Saving could be tens of thousands once all said and done. Thoughts, am I dreaming and delusional? Surely must be precedence for this, although can’t find it. In my simple mind seems to satisfy the VAT rules. https://www.gov.uk/guidance/buildings-and-construc...
Hoping someone, somewhere, may have experience of reduced VAT on extensions. Or might be able to point in the direction of an expert I can pay for some more formal consultation.
That being said, in the event anyone here has any knowledge here, would really appreciate if you think the below is all above board and plausible.
Buying a new property which has been empty for 3 years, deceased estate. Plan is to renovate and double the size of the house. This is to live in afterwards and not solely development.
I’m looking to project manage the build and appoint various trades to it.
Due to the property being empty for over 2 years, VAT can be charged at reduced rate of 5% instead of 20%. However, this only applies to the builder starting their work before the property in lived in. I plan to live in the property almost immediately after I’ve moved in. I will obviously allow some works to commence to satisfy this VAT rule.
The issue is that if I want a kitchen for example to be charged at 5% VAT, the kitchen would need to start pre anyone living in the property, which would not be the case.
The normal “easy” way to do this, is appoint a sole building contractor to do it. He does everything, and provided his first works start pre me spending a night, the rule is satisfied. But I don’t want to appoint a single builder to do it all, as will likely cost me more than the VAT saving as I was hoping to take advantage of sourcing contractors and materials myself.
My next option I’m looking at is doing the above, but creating my own LTD company to be the sole building contractor, and run it all through the business.
E.g. me as a private individual appoints Phil builders LTD (in which I’m the sole director) who will do all works. Phil builders LTD agree to charge me 5% as Phil builders LTD will start their works before I move in. They buy all materials and appoint sub contracts paying 20% VAT, who then claim this back from the VAT man.
For example of stage 1 – foundations.
Phil builders LTD appoints a sub contract to do all the foundations at the cost of £10k + 20 % vat. £12k.
Phil builders LTD claims the 20% vat back from tax man.
Phil builders LTD then charges me as private individual £10k + 5% VAT, £10k.5 for this stage of the build.
Then rinse and repeat for the whole build. Saving could be tens of thousands once all said and done. Thoughts, am I dreaming and delusional? Surely must be precedence for this, although can’t find it. In my simple mind seems to satisfy the VAT rules. https://www.gov.uk/guidance/buildings-and-construc...
I got an empty property reroofed and the 5% vat rate was applied. I did have to prove to the roofing company that the property had been empty for over 2 years, they checked this from council tax bills which they then checked with the local council. This was important to them as they may have ended up with an assessment from HMRC for undercharged VAT.
No idea about your thoughts about a LTD company but you mentioned claiming back from the tax man. As far as I’m aware this isn’t how the 5% VAT works, the builder (or whoever) charges the 5%, you can’t claim the difference between 5% and 20% from HMRC.
Not sure if this helps your situation but perhaps you’d be better renting somewhere short term so that the property is empty while you’re getting works done. That way any builders etc will be confident that they can offer the 5% without any problem to them further down the line. Guess it depends how the numbers add up.
No idea about your thoughts about a LTD company but you mentioned claiming back from the tax man. As far as I’m aware this isn’t how the 5% VAT works, the builder (or whoever) charges the 5%, you can’t claim the difference between 5% and 20% from HMRC.
Not sure if this helps your situation but perhaps you’d be better renting somewhere short term so that the property is empty while you’re getting works done. That way any builders etc will be confident that they can offer the 5% without any problem to them further down the line. Guess it depends how the numbers add up.
Seems to work for me ... obviously you will have to be registered for VAT for it to work. I think this is more a question for a tax expert rather than a construction expert. Further information here:-
https://www.gov.uk/guidance/buildings-and-construc...
ETA In my experience, people who intend to do this type of work themselves (self build), often live on site in a residential caravan whilst the work is being done.
https://www.gov.uk/guidance/buildings-and-construc...
ETA In my experience, people who intend to do this type of work themselves (self build), often live on site in a residential caravan whilst the work is being done.
Edited by RATATTAK on Sunday 24th March 22:52
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