Reclaiming VAT on Property Development

Minimising liability for VAT is a key factor in property development. It is vital that you enter into a development project with a clear understanding of the applicable VAT rules. There’s no shortage of complexity, with different tax positions for new builds, conversions and commercial property, with further differences depending on whether you sell or lease your property. 

Dependable professional advice could be the difference between achieving the returns you are aiming for, or ending up with a hefty tax burden which reduces or even wipes out any profit. If you are considering property development, it’s best to get in touch with our property experts sooner rather than later.

Is VAT zero-rated on new build homes?  

For new build projects, building materials and labour are zero-rated as long as the home is: 

• entirely new.
• separate, self-contained and can be sold on its own.
• not built for business purposes. 

If your suppliers charge VAT you can reclaim 20% of their costs. However, builders and contractors working on new builds will usually be zero-rated. There will be no VAT element on their invoices, so the issue of paying and reclaiming VAT does not arise.

It is important to understand that VAT refunds are not available on professional fees from architects and surveyors, equipment hire, fitted furniture and certain gas and electric appliances. There may be advantages in using a ‘design and build’ contractor as a ‘composite source of supply’ which includes professional and advisory services and which may fall into the zero-rated band. 

Is VAT zero-rated on conversions?  

A reduced VAT rate of 5% for materials and labour can apply to residential conversions or refurbishments where one of the following apply:

• A commercial property such as an office block is converted to a residential property.
• There is a change in the number of dwellings, such as flats being converted into a single dwelling. 
• A residential building which hasn’t been lived in for at least 10 years is being refurbished.

How do I claim a VAT refund on building work?

For VAT registered businesses, VAT refunds operate in the same way for building projects as they do for other business activities.

For VAT refunds for self-build DIY projects, you need to return the appropriate form to HMRC within 3 months of completing the project. It’s a good idea to look through the relevant HMRC application forms for new build projects and conversions. 

The forms show the level of detail you need to provide to claim a VAT refund, and you may well have questions on the back of what you see. As with any part of the property development process, it helps to have expert advice at hand.

Is a property development project a good idea for you? 

There is plenty to think about when you are considering property development, whether it is a new build or a conversion project. The implications in terms of time, cost, taxation and risk mean that you have to approach property development with care. 

Among the questions to ask are:

• How much money will I invest in the project?
• How much of my time will I commit to the project?
• Do I have a clear specification and a clear view of the costs?
• How will I select contractors and suppliers?
• Will I sell or lease the property? 
• How long will the project last?
• How much financial value do I require from the project?

Here at Perrys, our experienced property accountants offer expert advice on the financial aspects of development projects, including taxation. Get in touch to see how we can help maximise the return on your property investment.

Contact us today