Advice required please!

[ZacP]

We have a few options with our build, and would like ask you experienced and well regarded intelligent people for some guidance. We don't want to fall foul our the VAT reclaim regulations and end up hanging to pay VAT on the whole build.

 

Here is the site plan. The red dotted line is a bungalow we are demolishing. The green building is a store with no water or gas but electricity via a cable drawn from the bungalow. It's got windows and a door etc but is a store at the moment. The buildings are at the moment not connected in any way other than the power cable.  

 

 

Option 1: Build as shown and integrate this into the store so there is access internally between the new building and the old (does this mean that it might be classed as an extension, and also we would-be be removing all existing buildings on site)?

Option 2: Build up to the store but create no internal access between, almost like making a semi-detached house.

Option 3: Build to near the store, but not touching it, ensuring that its definitely a separate building

Option 4: Knock down everything and start again.

 

We're hoping for option 1 or 2. Obviously option 4 isn't great!

 

Separately, I guess if we wanted to convert the store at some point to be a granny annex (it would be cozy, but it is 2 stories) that would affect things too and obviously the conversion wouldn't be 0% VAT?

 

This is purely in respect of VAT, I know changes to the scheme would mean some form of alteration in planning. 

 

Thanks for your help! 

[LSB]

Conversion VAT is 5% whereas new builds are VAT free.

I guess you need to look at what you are allowed in your planning as that should include details of what you applied for.

 

[PeterW]

25 minutes ago, LSB said:

Conversion VAT is 5% whereas new builds are VAT free.

I guess you need to look at what you are allowed in your planning as that should include details of what you applied for.

 

That isn’t correct. VAT at 5% is only on certain types of conversion. If it is a building that has been part of another house such as a garage, then it is 20% VAT. The rules are not as simple as they appear ..!

[LSB]

40 minutes ago, PeterW said:

That isn’t correct. VAT at 5% is only on certain types of conversion. If it is a building that has been part of another house such as a garage, then it is 20% VAT. The rules are not as simple as they appear ..!

 

Ok, I sit corrected, we are converting a barn and that is 5% and I was under the impression that any sort of conversion of a non habitable building was the same.

 

[ZacP]

@PeterW It isn't connected, just a store. Does this count? 

 

@LSB I have studdied the documents fairly thoroughly and whilst i know what our planning allows for there is no mention of how leaving the existing ancillary building will affect VAT payments. Just looking for clarification and unofficial advice on this.

[Temp]

11 hours ago, LSB said:

Ok, I sit corrected, we are converting a barn and that is 5%

 

Its 5% but you can reclaim that (so 0%) but its not relevant here as already residential.

 

I think anything but option 4 is risky. The rules I've seen are pretty clear about the demolishing all buildings on site and/or only retaining a front wall if required by planning. 

Edited September 20, 2020 by Temp

[joe90]

You call it a store but what’s in a name?, with my planning I have a detached workshop but called it a garage just to make sure it was covered in the VAT rules. If during your planning application you called it something that was convertible then you might be ok.

[ZacP]

@joe90 planning is to attach it to the new build and incorporate it as habitable space. I didn’t know if that had a bearing on the VAT position. The main residential building will be completely going and being replaced footings up just not this one that was called a store during planning. No way could it be a garage due to access unfortunately! 

[Russell griffiths]

Forgetting the vat side of things, if you leave that building there how much will it hamper the new build, will it add more inconvenience to the demolition of the old house, how much extra agro will the builders incur working around it. 

Looking at your site I would think they would want a completely clear route down to the lower level, 

 

 

Just had another look, there’s more room than I remember at the right hand side, so you can forget my comments regarding access. 

Edited September 20, 2020 by Russell griffiths

[newhome]

When you have a complicated case like this with £££ riding on it you really need to write to HMRC and ask them. It will come down to what they say ultimately, not what people think on here. I don’t think you can leave the building and incorporate it into the new house and have it count as a new build as it fails the “demolish everything to foundations” test. It might then turn it into a conversion instead but it would fail on that point as the building you are demolishing has been a dwelling and presumably lived in.

[ZacP]

2 hours ago, newhome said:

When you have a complicated case like this with £££ riding on it you really need to write to HMRC and ask them. It will come down to what they say ultimately, not what people think on here. I don’t think you can leave the building and incorporate it into the new house and have it count as a new build as it fails the “demolish everything to foundations” test. It might then turn it into a conversion instead but it would fail on that point as the building you are demolishing has been a dwelling and presumably lived in.

This might well be the way forward. it does seem pointless to knock down a perfectly solid building just to rebuild it. 
 

do you have any idea of which department of HMRC deal with this? Or even an address/email? 
 

thanks! 

[newhome]

44 minutes ago, ZacP said:

do you have any idea of which department of HMRC deal with this? Or even an address/email? 

National DIY Team 
SO970 
HM Revenue and Customs 
Newcastle 
NE98 1ZZ 

 

Don’t bother with the phone as they have a habit of giving incorrect advice and later say that they have no record of it. Something in writing is the way forward. 

[ZacP]

Thanks @newhome, I’ll do that today. Guess it won’t be a quick response though!!

 

Anyone know how HMRC police this? Do they send an inspector out or just go on planning docs? 

[newhome]

1 hour ago, ZacP said:

Anyone know how HMRC police this? Do they send an inspector out or just go on planning docs? 

They go on planning docs and if they’re not sure about something they will ask via letter. They have been known to use Google Street View however. 

[Temp]

Unfortunately  HMRC can be reluctant to give any tax advice before the fact. I had to call their IHT help line recently and it even mentioned this in the recorded message you get. 

[ZacP]

How does this sound for a solution:

 

2 new planning applications: 

1 - to build existing house as a new build abutted to but not interconnecting with the store

2 - convert the store to be a separate 1 bed dwelling

 

Then we have one as 0% as tis a new build and one at 5% as a conversion if I understand the rules correctly?

 

TIA!

[PeterW]

3 minutes ago, ZacP said:

 

2 - convert the store to be a separate 1 bed dwelling

 

Then we have one as 0% as tis a new build and one at 5% as a conversion if I understand the rules correctly?

Is the store part of the existing property boundary ..?? i.e. has it been used as ancillary to the current dwelling as a store..?

 

If so, it is deemed to be part of the existing dwelling house and any conversion would be at 20% VAT not 5% VAT. The lower rate only applies for conversion from one building type to another (office to residential etc

 

Also, it’s highly unlikely you will get PP for the second 1 bed dwelling on it’s own as the council won’t see it as such. You won’t get any refund under self build VAT as you won’t qualify, and your mortgage funder is unlikely to fund the second build as it would be commercial. 
 

Unless you must keep the store, I would bulldoze the lot and start again. 

[Mr Punter]

Option 4.  It will be cheaper and simpler to start again.  Your access issues will be at an end.  You could set up a mini tower crane.

[ZacP]

Ok so, looking into this more and I still cant get a definitive answer (Im not sure there even is one to be honest). 

 

I guess that even if I don't qualify for the full VAT rebate, it'd still qualify as a conversion and therefore only be a 5% VAT rate? Is this the case? So basically my risk if I just bludgeon on though is 5%?

 

TIA!