VAT Exemptions for Self-Building vs. Converting

In our last blog post about financing a self-build project (click here to read if you missed it!), we touched upon exemptions from paying tax. Today, we’d like to go into that in a bit more detail! Keep reading to get clued up on VAT exemptions when self-building, compared with converting an existing building.

Claiming VAT back on your self-build

The most common tax exemption you’ll hear about when self-building is VAT. It’s true, you can claim back VAT on building materials and services you use to complete your project. However, there are a few rules surrounding this VAT refund. This what you need to check to ensure you’re eligible:

  • The building must be ‘separate and self-contained’
  • The building can’t be for business purposes, it must be a residential home (whether that’s a permanent residence or a holiday home)
  • Constructing a new building for a charity is eligible for a VAT refund
  • You must submit the VAT refund application to HMRC within three months of the project completion
  • You can’t claim the VAT back on hiring builders as they should already be ‘zero-rated’ and won’t charge you VAT*

*This relates to building new homes from scratch or converting commercial buildings into residential properties. You will still pay VAT on any general building work or maintenance on your existing home or your new home once it is complete.

Now, there are also some exceptions as to what you won’t be able to get a VAT refund on. These are as follows:

  • Furniture and decor
  • Materials that aren’t integral to the structure of the property
  • Any machinery or equipment that is hired for the completion of work
  • Self-build projects in the Channel Islands
  • Professional fees such as architects or surveyors
  • Anything that is already zero-rated and so doesn’t charge VAT anyway (e.g. builders’ services)

What is the difference between self-building from scratch and converting?

We also often get asked if there are any advantages to building from scratch or converting an existing building. When it comes to VAT, there can be an obvious difference between the two. As we’ve discussed, you can be exempt from VAT on a number of instances when building your own home from scratch. However, this isn’t necessarily the same when converting an existing building.

You can claim back VAT for building materials and services if you are converting a building that has been used for non-residential purposes, into a residential building. Properties that this covers include churches, barns, schools and old business premises.

So, if you are converting a residential building into a newer, updated residential building, you will have to pay VAT on materials and services used.

There isn’t room for compromise either – if the building was used for mixed purposes and has operated as a residential dwelling in the past, you won’t be able to claim any VAT back. There is a ten-year threshold on buildings previously used as dwellings. If the property has been lived in during the past ten years, it won’t be exempt from VAT payments.

Is it more worthwhile to self-build or convert?

Taking the above information into consideration, we’d say it really depends on your desired outcome. If you are looking for a brand new dwelling and would like to save on VAT, it’s definitely worth building from scratch. This way, you are in total control and don’t have to worry about the tax implications of what a property was previously used for.

Of course, if you just want to change up a building you already own, converting it will be cheaper than building a new property from scratch. You should weigh up the pros and cons, but if you can afford to purchase an existing building, you may find that it brings more benefits to buy a plot of land and build on that, to your exact specifications.

If you require any more help or information on which taxes you are exempt from paying during self-building, or the options surrounding conversions and building a new home, please don’t hesitate to get in touch with us on 01829 730244 or contact us via our website.

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