Reduce Property Renovation Costs Using A VAT Break

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Use A VAT Break To Reduce Property Renovation Costs

Buy To Let Property

Property prices are increasing at a rapid rate which means that the buy to let market will also be on the increase.

Most people I speak to are aiming to have at least one investment property at some point in the future and now may be a good time to get a slice of the pie.

Any property you buy is probably going to need a bit of work to get it into a ‘rentable’ condition. However, did you know that the work might be eligible for a VAT break?

The VAT Break

If you are:

  • converting commercial premises into residential
  • increasing the number of dwellings in a property (converting a house into 2 flats)
  • decreasing the number of dwellings in a property (converting flats into a house)
  • rennovating a property that hasnt been used for 2 years or more

    • Then you can ask your builder to only charge you VAT at 5% instead of the usual 20%.

    The 5% rate doesn’t apply to anything you buy personally such as curtain poles but if you asked your builder to supply them for you as part of the job then you will be able to take advantage of the 5% rate.

    It Doesn’t Work For Businesses

    As a business, you are unable to to take advantage of the 5% rate.

    You might think that it’s OK because your business is VAT registered and can therefore reclaim the VAT anyway. Unfortunately residential rentals are exempt from VAT so you are unable to reclaim any VAT.

    However, if you sold the properties to another business that you own (you could even set one up for this purpose) then this would be a zero rated transaction instead of an exempt one and you would therefore be able to reclaim any VAT on the building work. Just be aware of stamp duty!

    I would love to hear your feedback on this, especially if you have managed to make some savings because of it 🙂

    Vikki

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