Q: I am a building contractor specialising in renovating period properties. I am getting a bit confused with the rules on charging the reduced-rate of VAT for the renovation of properties that have been empty for two years or more. Also, one of my customers is insisting listed properties should be treated differently. Please, could you clarify?


A: Firstly, the zero-rate for approved alterations of listed dwellings was removed in October 2012 so that is no longer a consideration. There is still the possibility of zero-rating the sale of a substantially reconstructed protected building, but as you are working on other people’s properties that is not relevant to you.

The reduced rate of 5% for the renovation of dwellings that have been empty for two years or more is still extant and there are two circumstances in which it can apply; known unsurprisingly as the first and second empty home conditions.

The more common is the situation whereby a dwelling has been continuously empty for two years immediately before the work starts; this meets the first empty home condition. In such cases, the contractor can charge 5% for the supply and fit of building materials in the course of the renovation. It is recommended that proof is obtained that the property has been empty for the required time. HMRC suggest such proof should be obtained from a reliable third party source such as the local authority or utility companies. Illegal occupation by squatters or guardian type arrangements can be ignored.

Less common and more complicated from a VAT point of view are situations where the property is lived in whilst the work is being done. Contractors who have already started their works can continue to apply the reduced rate even if the property begins to be occupied while the work is ongoing. However, if other contractors begin their work after occupation takes place, for their work the first condition will not be met, so the second condition needs to be considered. Under the second empty home condition, the reduced-rate can be applied provided the dwelling has been continuously empty in the two years immediately before purchase, which is a different test to the first empty home condition. HMRC’s Notice 708 (section 8.3.4) does not explain this very well but the legislation is clear (paragraphs 3(2) & 3(3) Group 7 Schedule 7A). Additionally, the three criteria below must be met. These are:

  • No renovation or alteration had been carried out in the two years before the occupier acquired the dwelling (minor works that were necessary to keep the dwelling dry and secure can be ignored);
  • The services are supplied to the occupier (so subcontractors must standard-rate), and
  • The services must take place within one year of the occupier acquiring the dwelling.

In practice this will apply where a customer buys a house which has been empty for 2 years, the customer moves in and the works are carried out in the year following the purchase.

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