The 5% reduced rate of VAT was introduced almost 10 years ago on 1st April 2001. However not many people are aware of it. The 5% relief is given in two main area, the first being the renovation of an empty dwelling and the second being a conversion in respect of the number of dwellings.
If an existing residential property is renovated, after it has been empty for at least 2 years, the builder should charge 5% VAT for his services. This could apply to a builder renovating a domestic property or alternatively for a potential investor who is buying an empty property renovating it prior to renting it out.
The key thing to do if this applies to you is to obtain credible proof that the domestic property has been empty for 2 years. In practice many builders do not charge the correct rate of VAT in these circumstances.
Examples of changing the number of dwellings include:
- Conversion of a restaurant into a house
- Conversion of 1 house into 2 flats
- Conversion of a barn into a house
- Converting an office into a dwelling
If your builder has charged you incorrectly he should correct the position by issuing a credit note to reduce the amount of VAT. There are also certain forms you can obtain from HMRC for errors on VAT returns.
It is amazing how many property developers do not know about this as potentially it could save them thousands of pounds.
For more information please feel free to contact me mitch@ljd.uk.com
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