but read on, as there are a couple of scenarios that could apply.
Firstly, if you had permission to build a new house within the grounds of your main house, there could be an expectation that the works might be zero rated – as new build housing is generally VAT free. Within the curtilage of a listed property, it might well be unlikely, but on the off chance that permission is granted please check that there are no restrictive conditions imposed by the local authority. Frequently, for any development within the curtilage eg an outbuilding conversion, the planners insist that the only use will be ‘ancillary’ to the main house.
The other potential application of HMRC’s definition of ‘new build’ is where an existing property is demolished, but for one or two walls. It could be a dilapidated building, or one that has had almost total fire damage.
The rules are quite specific:
1) There must only be the front façade remaining of the existing building; or 2) There must only be two adjoining walls left standing, on a corner site eg a road junction
In both cases, retention of the walls must be at the insistence of the local authority, either expressly mentioned in the permission, or else in correspondence with the applicant. If the conditions are fulfilled, the building works can be zero rated by all contractors.
ENERGY-SAVING MATERIALS The reduced rate of 5% VAT is applied to the supply and fit of certain energy saving materials:
• Controls for central heating and hot water systems
• Draught stripping • Insulation • Solar panels • Ground source heat pumps
Members can email
editor@lpoc.co.uk or call the Club on 01795 844939 to speak with our VAT advisor
• Air source heat pumps • Micro combined heat and power units • Wood-fuelled boilers
Once again there are conditions, some of which have only been in force since 1 October 2019. The first condition is that the cost of the materials involved must not exceed 60% of the cost of the total works. If that condition is not fulfilled, you can still benefit from the 5% rate, but only on the labour cost.
An over-riding condition is that if the customer is over 60 and on ‘benefits’ the customer can still be given the 5% VAT rate. The particular benefits are:
• Child Tax Credit (other than the family element)
• Council Tax Benefit • Disability Living Allowance • Disablement Pension • Housing Benefit • Income-based Jobseeker’s Allowance • Income Support • War Disablement Pension • Working Tax Credit
Another overriding condition is that the energy saving works are the main focus of the work, rather than an integral part of a larger job. For example insulation installed into a new extension would still attract 20% VAT as it is part of the extension. It does not qualify on its own.
For completeness, the installation of new windows is not covered, nor is the installation of double glazing or secondary double glazing despite the obvious energy-saving benefits.
LPOC’s VAT advisor Q: 5% OR 20% VAT?
with
When we acquired the house and detached/separately listed cottage in 2012 the main house had been unoccupied just short of the two years to qualify for 5% VAT and the extensive restoration work on the main house was charged at 20%.
I now want to reinstate the detached cottage. It is a one up, one down cottage in what was the stable yard to the main house. We haven’t used the space as none of the utilities etc are connected. The plan is to make the cottage habitable, including a heating system and insulation. As the cottage has not been occupied for more than two years (probably more like 30 years), do you think 5% VAT would apply? My builder who did all the restoration work on the house is of the opinion that 5% applies.
A:
Despite it being empty for the requisite amount of time, the key to the answer is the planning permission, if you need planning permission and/or listed building consent to do the work. HMRC are very strict about allowing any VAT relief on curtilage buildings and are always awake to the potential for the planners to impose restrictive conditions. And, if there is a restrictive condition, e.g. that the cottage must have ‘ancillary’ use to the main house, then you don’t get the relief. If there are no conditions, and you are capable of selling off the cottage, then you get the relief. It need not be a planning restriction – it could be a covenant or similar. If there are no restrictions, you might be able to get a further relief depending on what the future plans are for the cottage.
Listed Heritage Magazine January/February 2020 37
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