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Q&As
Can I claim VAT back on alterations to the existing house, which are necessary to form a plot?
Alterations have to take place to our existing house in order to clear the site ready for building a new 4 bed detached house, which I plan to sell.
This involves demolition works to structures that are less than 10 years old, such as the garage and the room above, followed by the creation of a new garage within the existing kitchen area, the installation of a new kitchen at the rear of the old kitchen and a new access into the garden. This will all cost about £40,000. These alterations are part of the Planning Permission.
The new house cannot be built without them taking place. So can I reclaim the VAT on these works alongside my New Build VAT claim? Also, if my existing house suffers a loss in value as a result of the alterations necessary to create the plot, can I get CGT relief on that loss?
Answers
From your opening sentence I understand that you plan to sell the new build house.
That being the case, the new building is being constructed for the purpose of sale. This means you will be subject to income tax (and not capital gains tax) as it is deemed a trade. If you sold the land for development (rather than building on it first), you may be able to get some or all of the gain covered by principal private residence (PPR) relief, depending on the size of the plot.
If you are constructing the new build for sale, and it is on a clean site, the labour and building materials can be zero rated under VAT Notice 708 (which is different to the usual VAT 431NB that self builders would use when constructing a new home for their own private use).
There are restrictions on what type of building qualifies and which costs can be zero rated. But on the assumption that your project qualifies to zero rate the build under VAT 708, you may also be able to zero rate some of the work related to your existing house if it can be argued that the work is “closely connected to the construction of the building”, particularly in relation to access costs.
A capital loss on your PPR is not allowable for relief – so cannot be offset against future capital gains. Given the complexity of the tax law that affects your project, I would recommend that you seek professional advice prior to commencing your build.
