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Beginner's Guide - Tax
You can save 15% when you self build
All of the building work on a new home is free of Value Added Tax (VAT), which means a saving of 15%. If you are using a VAT-registered contractor, then all of their invoices for labour and materials should be zero-rated to exclude VAT.
If you are managing the project yourself and buying materials, you will have to pay the VAT but will be able to claim it back on com ple tion of the project by applying to the HM Revenue & Customs VAT office (0845 010 9000). A leaflet entitled VAT refunds for ‘do-it-yourself’ builders and converters (or VAT Notice 719) will be sent to you on request. Visit www.hmrc.gov.uk for more details.
The main considerations of the scheme are:
- Your house must be built with the intention of residing in it and not for selling or leasing.
- Where you are buying your own materials, keep all receipts for submission with your claim.
- Where a builder is employed for the supply of materials and/or labour you should not be charged VAT for either (if you are, contact the VAT Enquiries Office before you make any payment). Being registered for VAT, the builder will be able to claim back the VAT on their own return.
- You can only make one claim for a VAT refund and it must be made with in three months of completion (receipt of a completion certificate).
Renovations & Conversions
Work involved in creating a ‘new dwelling’ through the conversion of an existing building is also largely free of VAT. VAT-registered builders must charge the reduced rate of 5% on the supply of labour and materials which you can later reclaim on completion of the project. Details are outlined in VAT Notice 719.
Renovation projects are not considered to be ‘new dwellings’ and are therefore fully rated for VAT unless the property has been empty for two years or more, or if you are changing the number of units, in which case a reduced rate of 5% is applied. Properties abandoned for 10 years or more are treated as conversions (largely free of VAT).
Listed Buildings
Work involved in carrying out ‘approved alterations’ to listed buildings can be zero-rated by VAT-registered contractors, providing the work has been granted listed building consent and is neither a repair or maintenance. Details are available in VAT — Buildings and Construction (VAT Notice 708).
Capital Gains Tax
Capital Gains Tax is not levied on the sale of your ‘Principal Private Residence’, so the profits from a project are usually totally free of this tax.
Further reading:
- Get tips and advice from other self-builders and renovators in the Homebuilding Discussion Forum
Back to Beginners Guide Homepage
- Issue date:
- August 2008
Useful links
if i were to build two houses on a site and move in one while building the other one would I be liable to tax on the first one should it be sold once i move into the second one
You are allowed Principal Private Residence (PPR) exemption on only one property at any one time. The only way to enjoy this exemption on two houses would be to build one house, move into it, and then commence work on the second. The first one would need not to be in your ownership while building the second, although there are allowances in the CGT rules to allow some overlap.
I am currently running a major upgrade on a single house (about £150,000 net). It has been empty since March 2008, and construction commenced in July 2009, near to completion now. I was rather excited to read your info on Notice 719 and I researched further on the website hrmc.gov.uk to find if it qualified for reduced VAT.
I spoke to an adviser, who told me that that there had been a recent revision, and the info is now on Notice 708. Section 8 of this gives the exact info that I was looking for. 8.3.1. 'How does the two year rule work?'
'You can only reduce rate the renovation or alteration if, in the two years immediately before you start the work, the qualifying residential premises have not been lived in.' So, we miss out. Fortunately, I had not raised my Client's hopes too high.
The full document can be downloaded for free on the site. I would advise that you might amend the info on your website, and that you clarify that, as in my case, the 'building empty' period during building work does not count in the calculation of the two years' minimum qualification time.
Best wishes
Jack McNaney
Oxford
CGT on splitting a single dwelling into two seperate dwellings
I have a large semi detached old cottage that needs major renovation. The choices I am faced with is either renovate as a single 4 bed or make into 2 2bed units in effect creating a terrace of three. I could make more by splitting, but think it may be offset by Capital Gains Tax. What is the position on this
Renovation projects are not considered to be ‘new dwellings’ and are therefore fully rated for VAT unless the property has been empty for two years or more, or if you are changing the number of units, in which case a reduced rate of 5% is applied.
I have been under the impression for sometime that converting a dwelling that has been spit into 2, back into 1 house, we could claim back VAT relating to the project. It has taken us a few years to get planning & get ready to start this project next year. I now can not find any links to this being still the case? I wonder if anyone can confirm this is still the case? Thank you
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