If you’re considering either converting or creating new dwellings, it pays to plan carefully in order to minimise your liability. At Williamson & Croft, our team of expert accountants includes tax specialists, ready to help you navigate the best tax reliefs for your property project. 

Here’s our simple breakdown of how you can achieve optimum VAT relief on new dwellings.

Understanding the 5% reduced VAT rate

One of the best reliefs available is the reduced VAT rate of 5%, which applies to various residential conversion and renovation projects. As of 2024, the standard VAT rate is 20%, so the 5% reduced rate can dramatically alter construction costs. You can access the reduced rate if you are:

  • Converting a non-residential building into residential dwellings, for example, an office or warehouse
  • Increasing the number of dwellings within an existing residential building such as by converting a house into flats
  • Renovating a residential property that has been unoccupied for over two years

How much could this help save your project on VAT?

The potential cost savings from applying the 5% VAT rate can be significant, as one of our recent clients found out.

The client was purchasing a residential property in London for £8.5 million with refurbishment costs of £1.5 million. At the standard 20% VAT rate, this would have incurred a VAT cost of £300,000. 

However, as the property had been vacant for more than 2 years, we were able to apply the reduced VAT rate of 5%, saving the client more than £200,000 in VAT.

Read the entire case study here, or contact us to book in a consultation about your project with our VAT accounting specialists.

What does the 5% rate cover?

The 5% rate typically applies to:

  • Work on the building’s fabric such as walls, roofs, floors, stairs, windows, doors, wiring, and plumbing
  • Installation of utilities and facilities e.g. water, power, heat, drainage
  • Fitted kitchen units, sanitary ware, central heating, and light fittings

If the builder purchases materials on the owner’s behalf, they should charge 5% VAT on both materials and labour.

Understanding the 0% VAT rate for new dwellings

In some very specific cases, the construction and sale of new dwellings may qualify for ‘zero rating’. As the name suggests, this means no VAT is charged. However, the strict criteria below must be met.

  • The dwelling must consist of self-contained living accommodation
  • There must be no direct internal access to any other dwelling
  • The separate use or disposal of the dwelling must not be prohibited
  • Statutory planning consent must be in place and adhered to

It’s crucial to note that the 0% rate doesn’t always apply, even when creating new dwellings. The rules can be especially complex when converting existing buildings. We’d always advise consulting with a VAT specialist, so you aren’t stung by the promise of reduced rates that your build doesn’t qualify for.

It pays to plan ahead for property VAT relief 

As we’ve established there are brilliant tax relief incentives available for creating new dwellings. With potentially hundreds of thousands on the table, it’s crucial to take the time to plan ahead effectively before getting started on your build. Y

That way you can avoid tripping up and ending up not benefiting from these schemes if you can. 

With proper preparation, you can take full advantage of these tax benefits and avoid inadvertently disqualifying your project from these valuable relief schemes.

Get in touch to start a conversation with our team of tax accounting experts today.