House renovation and kitchen extension by Bradley Van Der Straeten Architects. Photo by French+Tye.
Navigating VAT rates for home renovations can be complex, but understanding the rules can lead to significant savings.
This comprehensive guide explores the various VAT rates applicable to renovation projects, helping you identify opportunities to reduce costs and maximize your budget.
For most renovation work on houses and flats, VAT-registered builders are required to charge the standard VAT rate of 20%. However, there are several exceptions where reduced rates or even zero VAT may apply.
A reduced VAT rate of 5% on renovations may apply in specific cases, including:
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Home renovation in progress by Larissa Johnston Architects.
If your project qualifies for the reduced 5% VAT rate, specific conditions apply.
The reduction covers labour and building materials provided by a VAT-registered builder but does not extend to items purchased directly by the homeowner. To ensure the relief applies, it's essential that the builder purchases all necessary materials.
This reduced VAT rate is limited to 'building materials' and their installation; other goods are excluded.
For listed buildings, you will also need to comply with guidelines set by heritage bodies like Historic England.
Under HMRC's rules, building materials are those that are 'incorporated' in the building (or its site) and 'ordinarily' incorporated by builders in that type of building.
Common examples include heating/cooling systems, bathroom sanitaryware, kitchens (excluding standalone appliances), flooring (except carpets), built-in furniture, decorating materials, and alarms.
Items not considered building materials and charged at the standard rate include cookers and other electrical appliances, carpets, and freestanding furniture.
For complete lists, refer to HMRC's Buildings and Construction (VAT Notice 708), paragraphs 13.8.1 and 13.9.
If a residential building has been unoccupied for at least 10 years, you may qualify for zero-rated VAT on the renovation work.
Developers can reclaim all VAT charged once they sell the renovated property, while homeowners planning to live in the property can benefit by reclaiming VAT through the DIY Builders Refund Scheme.
To qualify, you must prove the property's 10-year vacancy with documents like council tax records or utility bills. Developers must be VAT registered to gain relief.
Works to long-dilapidated buildings may be exempt from VAT. Project by David Connor and Kate Darby.
Some renovation works may be completely exempt from VAT, even if other parts of the renovation are subject to the standard or reduced rate.
Zero-rated VAT works include energy-saving materials and heating equipment, such as heat pumps, solar panels, insulation, and draught-proofing improvements. Certain modifications made to accommodate the needs of a disabled resident also qualify for zero VAT.
Insulation and draught-proofing upgrades are eligible for zero VAT, but only for existing parts of a building.
Insulation added as part of a new extension will incur the standard VAT rate.
Note that high-efficiency boilers, double glazing, secondary glazing, and energy-efficient appliances are subject to the standard VAT rate.
READ: How to Insulate Your Home
Retrofitting insulation is zero VAT rated. Photo by Ciarcelluti Mathers Architecture.
All types of heat pumps are zero-rated until 31 March 2027.
Wood-fuelled boilers, micro-combined heat and power units, and renewable power sources like wind turbines, solar panels, and energy storage batteries are also zero-rated.
READ: Do Solar Panels Need Planning Permission?
Professional fees for architects, engineers, surveyors, or other consultants providing design services are always charged at the standard VAT rate, if they are VAT registered.
Note that some small consultants may operate below the VAT threshold and therefore not charge VAT.
If you’re using a design and build company, both design and construction costs may be eligible for the reduced VAT rate if included within the contractor's work.
Solar panels ar typically exempt from VAT. Image by AES Solar.
Homeowners cannot reclaim VAT on renovations directly; VAT-registered contractors must handle this.
Your builder will buy materials at the standard rate and apply to reclaim the relevant VAT if eligible.
You'll need to provide evidence, such as council tax records, to confirm property vacancy for at least two years before work begins.
For sustainable heating and power installations, use registered contractors who can design, install, and commission these systems without charging VAT.
Vet potential builders carefully to ensure they will apply the correct VAT rates.
VAT calculator can be complex. Consider engaging a cost consultant, like a quantity surveyor or accountant, to help with VAT calculations and documentation.
For extensive renovation projects, a common question arises: should you renovate or rebuild?
New builds, including self-build projects, are zero-rated for VAT. This can save you up to 20% on construction costs compared to renovations, making them an attractive option from a financial perspective.
However, rebuilding isn’t always straightforward. You’ll need to consider planning constraints, the condition of the existing structure, and the overall feasibility of starting from scratch.
Consulting an experienced architect can help you weigh these factors and decide whether a renovation or rebuild is the most cost-effective solution for your project.
For VAT relief purposes, most parts of a kitchen are classed as 'building materials' except for cookers and appliances. Project by Bradley Van Der Straeten Architects. Photo by French+Tye.
When dealing with VAT on renovations, be mindful of these common pitfalls:
Can I claim reduced VAT on a partial renovation?
Yes, if the work meets the criteria for reduced VAT, even partial renovations can qualify.
How long do I need to keep VAT-related documents?
Keep all relevant documents for at least 6 years, as HMRC may request them for auditing purposes.
Can I claim reduced VAT on a second home renovation?
Yes, if the property meets the criteria for reduced VAT, it doesn't matter if it's a primary residence or second home.
This information was published in November 2024. VAT rates and rules may change. Always verify current rates with HMRC or a tax professional before starting your renovation project.
The information provided in this article is intended for general guidance and educational purposes only. For specific expert advice on your project, consult a skilled residential architect featured on Designs in Detail.
About the Author
Aron Coates is an architect with over two decades of experience, working on projects ranging from historic building restoration to contemporary home design.
