Empty property VAT exemptions
If you are thinking of renovating an empty property to let out you may be eligible for relief on VAT.
Exemptions apply in the following cases
A reduction in VAT to 5% on the cost of renovating single house dwellings that have been empty for 2 years or more
In order to claim this discount you must employ a builder that is VAT registered. This relief is known as Buildings and construction (VAT Notice 708) (opens new window).
For this the builder will have to pay the full rate of VAT on materials, but would charge the house owner 5%. It is then up to the builder to re-claim the remaining 15%. It is not the case that the builder will charge 20% then say that it is up to the property owner to claim the 15% back.
The builder should be familiar with the legislation and will know if the incentive applies to a project before commencing the work. If they at all unsure it is recommended that they check with their Accountant who should be able to clarify the situation relating to any specific circumstances.
Zero rating the sale of renovated buildings that have not been used for residential purposes for at least 10 years
This exemption can be only be claimed once the property has been sold (i.e. this relief is not available where a property is for let). It is important to note that the developer will have to be VAT registered or register for VAT and that the property has to be sold to reclaim the VAT.
If the house owner wishes to retain the property for private residential use and not sell it, they can make a claim for the VAT under the DIY Housebuilders' Scheme (opens new window), available from HM Revenue and Customs (HMRC).
How the schemes affects the house owner
The main difference between the two incentives is that when the property has been empty for two years, the owner has nothing to do, simply pay a reduced VAT rate. If the property has been empty for 10 years, the house owner has to outlay the full VAT rate then claim it back.
This may not fit in with the house owner's finances. So it may be the case that the house owner prefers to pay VAT at 5% and not 0%. The two year period still applies even if the 10 year period has passed.
How the schemes affect the builder
Under the 5% scheme the builder will have the additional responsibility of reclaiming the remaining VAT which they may or may not be happy with. The builder may decide that it is not worth doing the job. That is why it is important to agree this with the builder at the first point of contact. There is no benefit to the builder with the 5% scheme.
The 0% scheme is aimed at the larger builder or developer, as they own the property that is the subject of the work. Therefore, they benefit fully from the incentive.
Key questions
How can the local authority help?
We can confirm the duration that the property has been left empty in an official letter; this can be shown to the builder if necessary and can be used as evidence to give to HMRC.
This letter will just confirm how long the house has been left empty and confirm which incentive applies, not that work has started or been completed.
Please contact Sally Jones (Empty Property Officer - Swansea Council) who would be happy to check how long the property has been empty for and send you an official letter confirming this sally.jones3@swansea.gov.uk.
What other information will HM Revenue and Customs accept as indicators that the building was empty?
- electoral roll, council tax data
- information from utilities companies
What do HM Revenue and Customs mean by 'empty'?
- no part of the property has been lived in during the last 2 years (reduced rate) or 10 years (zero rate)
- use for storage can be ignored
- illegal occupation (squatters) can also be ignored
- occupation by guardians can be ignored
Where can I get more information?
Telephone HM Revenue and Customs National Advice Service on 0300 2003700.
Buildings and construction (VAT Notice 708) guidance from Gov.uk (opens new window)
DIY Housebuilders' Scheme guidance from Gov.uk (opens new window)
Reduce rate for the installation of energy saving materials
A reduced VAT rate of 5% applies to the installation of certain specified energy saving materials in residential accommodation. This includes the installation of:
- central heating and hot water system controls
- draught proofing
- insulation
- solar panels
- wind turbines
- water turbines
- ground source heat pumps
- air source heat pumps
- micro combined heat and power units
- wood fuelled boilers.
For further information on this please go to the HMRC website Energy-saving materials and heating equipment (VAT Notice 708/6) (Gov.uk) (opens new window)
Please note that this information is correct at the time of publication (April 2022). It is important that you check with HM Revenue and Customs for the up-to-date information.