Facts - VAT reduced rate for residential conversions and renovations

VAT: reduced rate for residential conversions and renovations

Who is likely to be affected?
1. Builders, property developers and owners of certain houses and residential homes and institutions carrying out conversions to certain buildings or carrying out renovation or alteration work on empty residential buildings.

General description of the measure

5% saving on your VAT bill

2. The reduced VAT rates for residential conversions and renovations introduced in Budget 2001 were targeted at services where a price cut would have the most effect on the regeneration and renewal of the UK’s housing stock. The Government has carefully considered representations made since the 2001 Budget, particularly by those representing charities, and has been convinced of the merits of making further targeted changes.

3. The scope of the reduced 5% VAT rate will be extended to the costs of:

* Converting a non-residential property into a care home (or other qualifying building used solely for a ‘relevant residential’ purpose);
* Converting a non-residential property into a multiple occupancy dwelling, such as bed-sit accommodation;
* Converting a building used for a ‘relevant residential’ purpose into a multiple occupancy dwelling;
* Renovating or altering a care home (or other qualifying building used solely for a ‘relevant residential’ purpose) that has not been lived in for 3 years or more;
* Renovating or altering a multiple occupancy dwelling that has not been lived in for 3 years or more; and
* Constructing, renovating or converting a building into a garage as part of the renovation of a property that qualifies for the reduced rate.

Operative date
4. The measure will come into effect on 1 June 2002.

Current law and proposed revisions
5. Conversions of non-residential buildings to dwellings or buildings used for a relevant residential purpose are already zero-rated under item 3 of Group 5 of Schedule 8 to the Value Added Tax Act 1994 when the recipient of the supply is a registered housing association or social landlord. Group 6 of Schedule 7A provides for a reduced rate for some other conversions. Group 7 of that Schedule provides for a reduced rate for certain renovations and alterations. These two Groups of Schedule 7A will be amended to reflect these changes.

Further advice
6. Contact the National Advice Service on 0845 010 9000.

source: HM Revenues & Customs