Most people who do up properties and sell them think that VAT planning has nothing to do with them because the sale of residential property is VAT-exempt (ie, you can‘t reclaim any of the 17.5% VAT charged by your builders), says The Schmidt Report. However, we’d be prepared to bet that an “awful lot” are missing out on “chunky” VAT reclaims, owing to one new rule in particular. Some years ago, in order to give housing supply a “shot in the arm”, the Government introduced a lower rate of VAT (5% rather than 17.5%) for various categories of conversion, including – probably most importantly – what is referred to as the “changed number of dwellings conversion”.
In practice, this means that in any situation where you start off with a building that has one number of dwellings (say one) and you end up with a building with a different number of dwellings (say four flats), your building contractor should charge you only the 5% VAT rate, rather than the full 17.5%. If you’ve been overcharged, ask for a refund. Should you then sell the flats, of course, you can’t reclaim the VAT – but it’s “much better not being able to reclaim 5% than not being able to reclaim 17.5%!”