10 year VAT discount


I have a property (number 13) which has been empty over 10 years, the owner lives next door in 15 and is wishing to renovate 13 and then make it one property.

I have been in contact with HMRC to discuss the capacity for it to be eligable for the zero rated VAT given to renovations on properties empty over 10 years.

They however inform me that this is treated as an extension of 15, and not the conversion of 13 back into a residential dwelling, although it fulfills all other criteria.

I was wondering if anyone else had had any similar experiences with this type of renovation and the VAT reduced rate?

thank you

tax and VAT

Is there a reason why the work on 15 cannot be completed with the discount, and then afterwards knocked through to number 13 to make a single property?
Many years back a large construction company in Sheffield area had a similar issue with regeneration funding. If properties had been demolished and rebuilt, they would not have been able to access funds. To get around the problem, they firstly renewed the roof of the building leaving the walls insitu, and then afterwards rebuilt the walls. Sounds alot of work but it was an extensive project and managed to secure funding by avoiding total demolition in one phase.

See attached guidance especially section 3, 6 and 8. There are other potential ways this can be considered a zero rated development, but there are a number of caveats and restrictions in the guidance. It also shows that you when you give advice re the exemptions you do need to be careful as various items such as professional fees, scaffolding, carpets and others, cannot be zero rated.
Here is a link to relevant pages of the VAT guide

Hi Luke.  This prompts a number of different thoughts.
Firstly, I assume that we all agree that the villain of the piece is the owner, not the VAT regulations.  Properties don't stay empty for 10 years (or at all?) because of VAT.   Perhaps the owner cannot afford to convert it.  In which case the appropriate response is surely - well sell it then. I don't mean we shouldn't bend over backwards to help people in this positon but the bottom line is the property needs to come back into use and if the current owners can't or won't do it - well, something needs to be done.
It is good to help owners with advice but the issues here around VAT strike me as highly technical.  I think it would be a mistake for anyone other than a VAT expert to give advice in circumstances like this.  But for what it's worth my interpretation is that the fact that the home has been empty for 10 years is the very reason why the owners cannot get the various VAT discounts.  Had it been empty for less than 10 years then it would have remained a dwelling for the purposes of the legislation.  In that case, the conversion of 2 dwellings into 1 would qualify for the 5% VAT rate.  But with this scheme there would be one dwelling at the beginninig and one at the end - so no VAT relief.  Kind of natural justice if you ask me. My interpretation could well be wrong but that is how I read the regulations.  Section 7 is the relevant section in my view. .
Regarding VAT generally on empty dwellings, I think there is a lot of confusion.  It's good to encourage re-use of existing material resources and that applies to pretty much anytihng I guess, not just houses.  But it is also a tax break, and I don't see a lot of point in giving a tax break to someone who is well enough off to own an empty dwelling. They'd be right near the bottom of my wish list of people deserving tax breaks.  A crucial point also is that they would benefit whether they did the dwelling up or not if they sold it.  If you buy an empty dwelling and do it up, yes you, the new owner, might pay VAT.  But when you purchased the building you would have taken that into account in your purchase price.  So the owner would have got less, corresponding to the cost of repairs plus VAT.  The new owner pays the VAT on the repairs - but really it is the previous owner who bears the cost.  If, on the other hand, VAT relief is available on the repairs then, assuming normal market rules apply, you are able to pay more money for the property and guess who is the lucking beneficiary?  Not you but the owner who's been keeping the home empty.
You can see another aspect of this in the tax system under the concept of "capital repairs" - see www.hmrc.gov.uk/manuals/pimmanual/pim2020.htm Repairs after a building is acquired which notes "The underlying principle is that the cost of buying a property in good condition is clearly capital expenditure. Hence the cost of buying a dilapidated property and putting it in good order is also capital expenditure."  That just reinforces the fact that repairs costs enter into the capital value of an asset.  That's one of the reasons (certainly not the only one) that secondhand homes tend to be cheaper than new ones.
Returning to no.13, it seems clear that it would qualify for the "10-year empty" zero-VAT concessions if refurbished as a separate dwelling, as Paul suggests.  But they'd probably need to meet all the current Building Regulations for it to qualify as a separate dwelling as it would not, I think, be "under former control".  I suspect the additional cost of that might well exceed the VAT payable if the premises were simply upgraded as an extension of the house next door.