Beginner's Guide - Tax

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

• Read more about tax in the self-build finance section

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