VAT reduction / claim back conversion of Commercial property to residential dwelling

Hi. I have a few questions regarding the VAT reduction / claim back when converting a commercial property into a home. We have seen a property that once was, many moons ago, a dwelling but became commercial in the 1910s. The property has been completely empty / unoccupied / unused for the past 8 years. As it was once, albeit a long time ago, a lived in dwelling, would any relief we could get then be based on converting a non residential property or converting a derelict residential property (even though it hasn't been lived in for over 100 years nor occupied or used in a commercial, or any, form for the past 8 years)? There is currently planning permission in place for change of use and to convert the property into two new dwellings (including adding new extensions and other external building work). To cut a long story short, we are looking to buy it but keep it as one residential dwelling only and would not be adding any new extensions or other external building work. Given this, the majority of the work will be done under building control / regs with, hopefully, only a minimal planning application for change of use. To reclaim the applicable VAT on services and materials, the guidance says you have to provide the full planning application. To be successful, does this planning application need to list every aspect of the works being undertaken and reference to the items you wish to claim for? For example, if there is no mention of new light fittings, baths, lino or blinds in the planning application (as permission isn't needed), can they be claimed for? I understand you can claim for these as well as taps, TV aerials and the like which wouldn't be listed in a planning application, so to what detail does the planning application HMRC want provided need to run to? If it simply states "permission granted for change of use" could we then just submit that along with all the relevant invoices? Lastly, in our case, am I right in thinking we'd need the contractor to charge VAT at 5% which we would then look to claim back (and 20% for any other allowable items from general retailers)? I hope that makes sense, thank you

Hi,

If you are completing a conversion of a non residential property to a residential property and the property has been lived in for at least 10 years then you can benefit from the reduced VAT relief.

Buildings and construction (VAT Notice 708, section 7)
Buildings and construction (VAT Notice 708, section 8)

As the property has not been lived in for 10 or more years then you could also benefit from using the DIY Scheme if all the conditions are met.

Claim a VAT refund for a conversion if you're a DIY housebuilder

When contractors are completing the conversion for you then they should be charging at the 5% rate of VAT for any qualifying work, but if you buy over the counter goods then these goods will be charged at the 20% rate.

The planning just needs to state what the planning is about, for example, new dwelling being built or conversion being carried out.

The planning department will insert conditions, unless the property has to have a LBC (Listed Building Consent) which may specify the type of windows and doors. Planning might ask as a condition for types of materials, but that would be covered under reserved matters. 

Goods and services you can claim for under the VAT DIY Scheme

Thank you.

Many thanks for your reply. I am still confused on one point. The form I’d need to complete has these questions Have you carried out work to a building that has previously been lived in? - this would be “yes” even though it was last lived in 108 years ago Have you got evidence that the building has been empty for 10 years or more before you started work on the property? This is the issue I have. Although it hasn’t been lived in for over one hundred years, it hasn’t been EMPTY for more than 10 years (only 8 since the commercial business closed) Would we still be eligible for the DIY conversion relief?

Hi,

As the building is a commercial property, the question of whether the building has been occupied is not relevant as we are only interested in whether it has been lived in as a residential property.

You could answer that the property has been lived in but then note how long ago this was.

As regards the evidence, we would be looking for evidence that the property was commercial, not evidence that it hasn't been occupied in the last 10 years.

Thank you.

Thanks for getting back to me. However this doesn’t help with my issue. The form that needs completing (VAT claim form for conversions) is black and white. I need to answer the question of “have you carried out work to a building that has previously been lived in” with a “yes”. The next question then needs answering - “Have you got evidence that the building has been empty for 10 years or more before you started work on the property”. It doesn’t make any reference to the building being commercial just has it been “empty” (which it hasn’t as it was last occupied on a commercial basis 8 years ago) It clearly states that if ‘No’, you are not eligible to claim a refund under this scheme. VAT relief is a make or break as to whether we proceed. So can you confirm 100% that if I tick yes for the first question (has it ever been lived in) I can then also tick yes for the next question (despite it not being “empty” for 10 years) and only provide evidence that the building was last used for commercial purposes and the fact it’s only been empty for 8 years, in any capacity, will not prevent me from gaining the relief? Cheers

Hi,
Please answer 'yes' to both questions on this application.
This will allow the application through and if the HMRC need any additional information they will make contact with you.
Thank you.

I have a follow up question on this subject - my company supplies doors, if we sell direct to the home owner (rather than a builder doing the conversion) do we charge at 20% or 5% - they have supplied the planning application screen shot as evidence and doors would be delivered direct to that commercial property that being converted, but we are not completing the installation? Thanks

Hi,
If you are just supplying the materials then the supply would be at the 20% rate of VAT. You can see guidance here:
The VAT meaning of ‘building materials’
Thank you.

Hello I bought a pub that was closed down and the house next door. I gained planning permission to turn the pub from commercial to residential and building warrant to knock the pub through into the house next door. Should I be charged at 5% by the builders?

Hi. Please see the guidance below:  Reduced rating the conversion of premises to a different residential use    . Thank you .

Hi there, I am a little confused, maybe in the wrong area. We are converting a barn to a one-bedroom dwelling. The barn is on the same property as our house. Does that qualify for 5% VAT? Thanks in advance.

Hi. You can benefit from the reduced rate of VAT if you are converting a non residential property in to a residential property which is a dwelling in it's own right and meets the definition of a single household dwelling as per the guidance below: 7. Reduced rating the conversion of premises to a different residential use Buildings and construction (VAT Notice 708) . Thank you .