While the rules for claiming back VAT on a conversion compared to a self build do differ, concessions do exist and saving thousands on your costs is possible, when you know how.
The DIY Housebuilder scheme allows you to reclaim some of the VAT you pay when converting a building into a residential home, primarily on the materials used to construct and complete your home.
As this can amount to a substantial sum, understanding the criteria and how to apply is the key to a successful outcome. Here's how to make sure you don't pay more than is necessary when converting a building into a new home.
What are the rules?
The DIY Housebuilder Scheme is the umbrella under which you can claim back VAT on both a new build, and a conversion.
In the case of conversions, it applies to the work you may undertake when converting the following types of buildings:
- Barn conversions
- Old churches
- Business premises
- Schools
- Warehouses
Build expert, Mark Stevenson explains more. "For conversions, the scheme requires a non-residential building, e.g. an office, barn, church, shop or warehouse, to be converted into a dwelling that will be used as a residential home.
"A derelict residential property that has not been used as a dwelling for at least 10 years before work starts, can also be treated as a qualifying project in a similar way to a conversion," he notes.
And, even if you buy the space as a serviced shell, you can reclaim the VAT paid on eligible works to complete the conversion.
When you can't claim back the VAT
However, as well as understanding when a conversion classes as one that you can reclaim VAT on, it's also worth knowing when you can't. According to GOV.UK, the following are exempt:
- Property conversions that because of a term in the planning permission (or similar permission such as a planning agreement) cannot be sold separately or used separately
- You're converting a property that either you, or your relatives, do not intend to live in, but intend to sell or let out, or use for any other business purpose – a business purpose includes dwellings built because you need to live where you work
- The building will be used for another business purpose and you are speculative developer or business owner that will make income from the property when completed
Mark Stevenson is a construction professional with almost 35 years’ experience across housebuilding, timber systems manufacturing and bespoke residential development. He is the owner of Elsworth Projects Ltd, a consultancy specialising in the project management of bespoke self-build homes. Previously Managing Director of Potton and former Chair of NaCSBA and the Structural Timber Association, Mark is widely recognised for his specialist knowledge of timber construction, land finding and appraisal, and the construction of self-build projects. Alongside his professional career, Mark is a skilled joiner, hands-on renovator and serial self-builder. He regularly shares his knowledge at Homebuilding & Renovating Shows and coaches self builders.
What can you claim VAT back for?
The rules regarding what you can and can't claim for a very similar to a new build, in that the guidelines refer to eligible goods and services that are part of the construction of the new home or conversion. This includes elements such as windows, bricks and structural elements such as RSJs.
But, there are differences.
"VAT paid on conversion projects can be reclaimed, with some subtle differences to new build projects," explains Mark Stevenson. "First, the contractor should only charge VAT at a reduced rate of 5% for conversion work, which can be claimed back if the work is genuinely part of the conversion of a non-residential building into a home – check the planning permission consent as a starting point to see if your project complies," he advises.
Other than that, the main point to remember is that as with self builds, you can only claim back VAT on goods and products that form part of the infrastructure of the property. So elements that can be removed, such as carpets, kitchen appliances, soft furnishings and so forth are not eligible.
Is converting a mixed-use building the same?
The other element worth noting is that where any part of a building being converted has been used as a dwelling before, and your conversion results in a single dwelling, you cannot recover the VAT on the building work.
For example, if you converted a pub with accommodation above, or a live/work unit, you could not recover VAT on your project. This is because the ultimate sale will be VAT exempt as an existing dwelling, rather than zero rated as a new dwelling.
However, the reduced rate of 5% VAT still applies (using VAT-registered contractors) when:
- A building has been empty for more than two years, or
- If there is a change in the net number of dwelling units.
In the case of the latter, where there is a change in the net number of units, VAT can also only be recovered on the new dwellings, and not on those parts of the building that were already in residential use.
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How do you apply to claim back VAT on a conversion?
To make a claim, firstly familiarise yourself with the guidelines on claiming VAT for a conversion which can be found here. In terms of the claim form, you need to use VAT431C for conversions.
Completing the form will require a number of different documents as follows, all of which are required to confirm your conversion is legal. Copies are deemed acceptable.
- Building regulations completion certificate
- Evidence of planning permission – either full planning permission or outline planning permission and approval of reserved matters
- Your conversion architectural plans
You'll also need to make the claim within 6 months of your project being completed, so it's wise to keep a track of all invoices and relevant documentation as you progress through your build, so you have it readily to hand once you've moved in.
And, as with new builds, you have a one-off opportunity to apply, so don't assume you can do this in stages, or add on something you forgot at a later stage.
If you're trying to calculate how much you could claim back, take a deeper dive into our guides on barn conversion costs to help you establish where you could recoup money. And, if your conversion will involve an extension too, here's how much you could need to find for extension costs.
