The 20% VAT applied to most goods and services is a burden for the private individual. Whilst VAT-registered builders can reclaim the VAT spent on their purchase costs, most homeowners can not, adding significantly to the cost of improving your home.
There are however, certain exceptions for which you may be able to qualify, especially if you plan to sell on. Investors can register for VAT voluntarily if they are substantially upgrading a listed property with the intention of selling it thereafter, although this may not always apply to large-scale alterations. However, works regarded as maintenance or ‘incidental repair’ rather than upgrading will not qualify.
In a move to increase the supply of housing there is also a reduced rate of VAT (5% compared with 15%) on the costs of converting residential and commercial property into multiple independent residential units such as flats.
Bear in mind also that VAT is fully recoverable on the cost of new building. In view of the amount of VAT involved, some people have found that it is more cost effective to completely demolish an old building and build a new one in its place, than it is to renovate the original property and pay the VAT.
However, caution should be exercised if you decide to change your plans and, for example, rent the property out when you originally intended to sell it. This would effectively reverse the VAT-free treatment and you would have to find the money – without having any proceeds of sale from which to draw!
As with many such things, an early word with an accountant and proper planning can pay dividends. Please feel free to contact us to discuss any development plans you may have.