VAT treatments for constructing a new house from scratch

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The construction and supply of new dwellings (houses and flats etc.) & VAT

 

In this short article, I will not be able to cover all the important details about the construction and supply of a new dwelling, but I will mention some main vital points about this topic.

Dwelling means a house, flat or any other similar place of residence according to the Oxford dictionary.

 

Developing a new dwelling from scratch has some different VAT rules in the UK.

 

Let’s have a look at these details under different headings:

 

Works that go into constructing a new dwelling (house)

 

Let`s say that you are the landowner and you agreed with a construction company to build a new house for you.

 

If you buy building materials and goods to give to the construction company to build your house, you will have to pay standard rated (20%) VAT for the materials and goods.

 

But if the construction company buys all these materials and goods all these items will be Zero-rated (0%).

 

Apart from these materials and goods, the construction services will also be Zero Rated (0%).

 

You must be careful about these materials and goods as some of them might not be `building materials` according to VAT rules.

 

The other important point is that if you receive some services from architects and surveyors for this house project, all these services will be standard rated (20%).

 

Onward supply of this house (dwelling)

 

Onward supply mean what you will do after your house is built

 

For example, if you live in this house, it is totally fine and nothing else to do.

 

If you sell this house as a freehold property to another party the sale will be zero-rated (0%).

 

On the other hand, if you rent this house (the grant of a long lease – a grant of major interest) as a long lease which is for more than 21 years after the construction is completed, then again it will be Zero Rated (0%).

 

The good news is that as the sale of this house is Zero-rated (0%) you will be able to claim the VAT back from HMRC if you pay VAT for any services and materials when your house was being constructed.

 

One of the most important factors is if you decide to lease this house for less than 21 years (short term rents are not a grant of major interest), these rental incomes will not qualify for Zero Rated (0%) VAT, and it will be an Exempt supply (Exempt VAT). Because of this Exempt supply, you will not be able to claim the VAT back for your expenses whilst you were building this house.

 

If you need any help, get in touch with Accountancy Assist for a personal, friendly accountancy service and see how we can transform your business.

 

Happy holidays

 

Murat Kurt FMAAT, ATT

December 2021

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