VAT on Residential Development For property developers, it is important that the VAT issues arising from a build project are ironed out as part of any initial financial appraisal.
The VAT rules can be complex as there are different VAT rate which apply to building works depending upon the circumstances in which the works are carried out and the nature of those works. There are also different VAT rates which can apply on the sale or leasing of buildings.
These differences are highlighted below:-
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Construction related services in relation to a conversion of a non-residential building into a dwelling or a number of dwellings or a building which has a residential purpose should be charged at the reduced rate of 5%. This would include plumbing works, building works, electrical works, drainage and other works undertaken to the fabric of the building. Other costs in connection with a conversion project will incur VAT at 20%. •
The first sale or first grant of a long lease (>21 years) over a property by the person who has constructed or converted the building into dwelling(s) or for a residential purpose will be subject to a 0% VAT rate. However, the sale of a newly completed commercial unit would be subject to a 20% VAT rate. It is worth noting that where the supply consists of the grant of a first long lease over a newly completed residential property, only the initial lease premium (or first rental payment) will be zero-rated. Subsequent rental payments will be exempt for VAT purposes.
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Works to construct a new, qualifying building such as a new-build home or a building which has a residential purpose such as a care home should be invoiced to you at a VAT 0% rate where the services are made in the course of constructing the building (ie building works, electrical works etc). Any other costs will need to be invoiced at the standard 20% VAT rate (eg management fees, hire of goods, professional fees).
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