Lynne, thank you for your reply.
VAT rate on conversion
In order for construction costs to qualify for zero rated VAT , you have to demonstrate that a qualifying building has been, is being, or will be constructed. Examples of when a qualifying building is constructed (VAT Notice 708 – Building and construction) are:
- it is built from scratch, and, before construction starts, any pre-existing building is demolished completely to ground level (cellars, basements and the ‘slab’ at ground level may be retained)
- the new building makes use of no more than a single facade (or a double facade on a corner site) of a pre-existing building, the pre-existing building is demolished completely (other than the retained facade) before work on the new building is started and the facade is retained as a condition or requirement of statutory planning consent or similar permission
- a new building is constructed against an existing building so that they share a wall but there is no internal access between them;
VAT at the reduced rate of 5% would apply if you are converting the premises into a multiple occupancy dwelling – see para 7 and 14.5 of VAT Notice 708.
In my view if you are intending to convert the big house into flats, conversion costs would be reduced- rated at 5% as you would be carrying out a qualifying conversion.
You can view VAT Notice 708 here
Tax relief on conversion costs would only be available when you sell the converted property and not immediately.
I hope this is helpful and answers your question.
If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.