My VIP Tax Team VAT question of the week: Conditions for applying the reduced VAT rate to the renovation of empty dwellings

Where work is carried out to an eligible dwelling that has not been lived in during the two years immediately before the work starts the reduced rate of 5% can be applied. VAT notice 708 Section 8 sets out the conditions that must be met. https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section8

Where there are people living in the premises whilst the work is carried out there are two empty house rules that can be considered. If one of the rules is met, the client can reduce rate the supply. VAT Notice 708 Section 8.3.4 sets out the empty house rules as set out below:

First rule

If the ‘qualifying residential premises’ have not been lived in during the two years immediately before your work starts, all of your work is reduced-rated. This is the case even if the premises start to be lived in again while you are carrying out your work. The occupier must move in on a day after you start your work. Qualifying residential premises includes multiple occupancy dwellings and buildings to be used for a relevant residential purpose as well as single household dwellings (Notice 708 para. 8.2).

But if, when your work starts, the premises are already being lived in, or have been lived in during the previous two years, all of your work is standard rated unless the second rule applies.

Second rule

You can reduced-rate your services of the refurbishment or alterations of a ‘single household dwelling’ where all the following conditions are met:

1. In the two 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 two years before the occupier acquired the dwelling (you can ignore minor works that were necessary to keep the dwelling dry and secure).
3. Your services are supplied to the occupier – so if you are a subcontractor, you must standard rate your work.
4. Your services take place within one 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.

So, let’s look at the rules and whether the occupier’s situation meets either of the rules and the conditions set out above.

First rule

The occupier does not meet the first rule as the occupier has already moved into the property. Therefore, under this rule the supplies your client makes would be standard rated.

Second rule

1. The dwelling had been empty for more than 17 years before the occupier acquired the dwelling.
2. No renovation or alteration work was carried out in the two years before the occupier acquired the dwelling.
3. The client is supplying the occupier.
4. The dwelling was acquired in August 2021 and work will be carried out February 2022. The works will have taken place within one year of the occupier acquiring the dwelling.

All the conditions set out in the second rule have been met, therefore the client can apply the reduced rate of 5% for their supplies.  Where works continue past the one-year limit, the work done up to that point would be at 5% but works done after would be standard rated.

Your client may be asked to provide evidence to show that the building had not been lived in during the two years prior to the occupier acquiring it.

VAT Notice 708 Section 8.3.2 sets out examples of proof such as Electoral Roll and Council Tax records, utilities companies, Empty Property Officers in local authorities, or any other source that can be considered reliable.

Further guidance on the reduced rate for the renovation or alteration of empty residential premises can by found in HMRC’s Manual VCONST07000 https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst07000

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