Reduced Rate: Empty home conditions
My clients, a couple in their early thirties, have recently purchased what will become their dream home. It is a beautiful old detached house in need of major refurbishments; the former elderly occupant died 3 years ago, and it has not been lived in since then. I am aware of the reduced rate VAT relief for the refurbishment of empty residential premises, but my clients are really keen to move in before the works are even started!
Question: Can you please explain the first and second empty home conditions?
Answer: The VAT legislation in relation to the reduced rate of VAT for residential renovations and alterations is VATA 1994, Schedule 7A, Group 7. The relief allows the supply, in the course of the renovation or alteration of qualifying residential premises, of qualifying services related to that renovation or alteration.
‘Qualifying residential premises’ means a:
• single household dwelling;
• multiple occupancy dwelling, such as bed-sits;
• building (or part of a building) which, when last lived in, was used for a relevant residential purpose, and after the renovation or alteration will be used solely for such a purpose;
• building (or part of a building) which, when last lived in, was one of a number of buildings on the same site that were used together as a unit for a relevant residential purpose, and after the renovation or alteration will be used solely for such a purpose.
Details of the relief can be found in section 8 of VAT Notice 708: Buildings and Construction https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section8
The relief is aimed at bringing existing housing stock back into use, and allows the reduced rate of VAT to be charged for construction services providing works of repair, maintenance (such as redecoration), or improvement (such as the construction of an extension or the installation of double glazing) carried out to the fabric of the dwelling. Building materials supplied with the construction services are also subject to the reduced rated. In order for the relief to apply, the dwelling or other eligible premises must not have been lived in for a period of at least 2 years before the renovation work starts, but as
they have alluded to in their question, for single household dwellings there is an allowance for the works to be reduced rated even if the building is occupied.
There are 2 empty house rules or conditions applying to the VAT relief.
First rule – applies to all qualifying residential premises.
If the ‘qualifying residential premises’ have not been lived in during the 2
years immediately before the building contractors work starts, all of their work is
reduced-rated. This is the case even if the premises start to be lived in again while
they are carrying out their work. The occupier must move in on a day after the
contractor starts their work. This applies to both main contractors and subcontractors.
If however, when the contractor’s work starts, the premises are already being lived
in, or have been lived in during the previous 2 years, all of the work is standardrated.
Second rule – This applies only to Single Household Dwellings
A building contractor can reduce rate services of the refurbishment or alterations to a
‘single household dwelling’ where all the following conditions are met:
1. The 2 years immediately before the occupier acquired the dwelling it had not
been lived in.
2. No renovation or alteration had been carried out in the 2 years before the
occupier acquired the dwelling (you can ignore minor works that were
necessary to keep the dwelling dry and secure).
3. The contractor’s services are supplied to the occupier – so if you are a
subcontractor you must standard rate your work.
4. Your services take place within 1 year of the occupier acquiring the dwelling.
This exception to occupation will not apply to the renovation or alteration of multiple
occupancy dwellings or buildings intended for use for a relevant residential purpose.
In my client’s case, the house is a single household dwelling which has not been
lived in for 3 years prior to the couple’s acquisition of the house and there has been
no renovation of alteration work carried out since the former occupant died. As long
as the works start within a year of the clients purchasing the building, any building
contractors working directly for the clients will be able to reduce rate their services.
Sub-contractors working for the main contractors will not be able to reduce rate their
services, however VAT registered main contractors will be able to recover the VAT
charged at standard rate to them by their sub-contractors, and bill on to the
occupiers at the reduced rate.