VAT on Home Renovations & the DIY Reclaim Scheme

VAT on home renovation work is one of the most misunderstood areas of UK construction finance. Many homeowners assume all building work carries 20% VAT, but the reality is more nuanced, and knowing the rules can save you thousands of pounds on a larger project.

There are three rates that can apply to building and renovation work: 20% (standard), 5% (reduced), and 0% (zero rated). Which applies depends on the type of work, the current use of the property, and how long it has been empty. Self-builders also have access to the HMRC DIY Housebuilder Scheme, which allows VAT paid on materials to be reclaimed after completion.

The Three VAT Rates for Building Work

20% Standard Rate

The standard 20% VAT rate applies to most renovation, repair, and improvement work on existing residential properties. This includes:

• Loft conversions on occupied homes
• Extensions to occupied homes
• Kitchen and bathroom renovations
• Rewiring and re-plumbing of occupied properties
• Decorating, plastering, and general maintenance
• Landscaping and external works

If your builder is VAT-registered (required if turnover exceeds £90,000 in 2026), they will add 20% VAT to their labour and materials.¹ Sole traders or small contractors below the threshold do not charge VAT, which can be an advantage on smaller jobs.

5% Reduced Rate

The 5% reduced rate is a significant saving and applies to:

Residential conversions: changing the number of dwelling units in a building, for example, converting a house into flats, or a commercial building into residential. It applies to the building work, but architects’, surveyors’ and other professional or supervisory services are always standard-rated.²

Empty property renovation: if a property has been empty for two or more years, renovation work can qualify for 5% VAT. The property must have been previously lived in (not a new-build), and the contractor should hold evidence of the period of vacancy before applying the reduced rate. That evidence typically comes from Council Tax and electoral roll records, utility company records, or a letter from the council’s Empty Property Officer.

Properties empty for 10+ years: a builder’s renovation work is still charged at 5%, but HMRC treats a home that has not been lived in for at least 10 years as non-residential, so a developer who converts it can zero rate the first sale, and a DIY converter can reclaim VAT through the DIY scheme.²

Mobility aids: products designed or adapted for a disabled person, such as stair lifts, and building work such as ramps, widening doors or installing a lift or toilet, can be supplied without VAT when the person’s disability qualifies.³ Adapting a bathroom into an accessible wet room can also qualify; see HMRC Notice 701/7.

Zero Rate (0%)

Zero-rated construction work means VAT is charged at 0%, the builder still shows VAT on the invoice, but at nil. You don’t pay it, but the builder can reclaim their input VAT on materials. Zero-rated scenarios include:

• New-build residential properties (from foundations to handover)
• The first sale by a developer of a home converted from a building not lived in for 10 years or more
• Extensions that create an additional self-contained dwelling wholly within the extension

Zero rate does not apply to extensions, loft conversions, or renovations of occupied homes, a common misconception.

The Date Tests Decide the Rate, and They Are Unforgiving

The reliefs above turn on dates, and the dates are tested against a specific event rather than against the job in general. This is where most of the money is lost.

The two-year empty test runs to the day work starts. Notice 708 is blunt about it: “if, when your work starts, the premises are already being lived in, or have been lived in during the previous 2 years, all of your work is standard-rated.”² Under that first rule, moving in a day before the builder starts puts the job back to 20%, which is a 14.3% rise in the inclusive price for identical work on the same house. There is a second rule for a single household dwelling bought after standing empty: the reduced rate can still apply if it had not been lived in for the 2 years before you acquired it and the builder’s work takes place within 1 year of your acquiring it.² If you are buying an empty property and intend to claim the reduced rate, the order of events matters more than the calendar.

The relief is wider than most people expect. Where it does apply, it is not confined to making the house habitable. The notice allows the reduced rate on “any works of repair, maintenance (such as redecoration), or improvement (such as the construction of an extension or the installation of double glazing) carried out to the fabric of the dwelling during the renovation of the empty property.”² An extension built during a qualifying empty-property renovation can carry 5% where the same extension next door carries 20%.

The ten-year clock is measured to two different events. For zero rating a sale or long lease it is the 10 years immediately before the sale; for zero rating the construction services it is the 10 years immediately before the work starts.² A conversion taking eighteen months can pass one test and fail the other on the same property. The notice also warns that if the property starts being used as a dwelling while the work is running, anything after that point is not zero-rated.

The Rate Does Not Follow Every Item

Zero and reduced rating follow the work only for goods that count as building materials. Carpets and most fitted furniture are not building materials, so they stay at 20% inside an otherwise zero-rated new build, and the notice adds that if you install goods that are not building materials “you must also standard rate your installation charge.”² Both halves of the charge move, not just the goods.

A £20,000 package of carpets, wardrobes and appliances therefore carries VAT that a headline cost per square metre built on the zero rate does not contain. The DIY reclaim scheme draws the same line, excluding fitted furniture other than kitchen furniture.⁴

Listed Buildings: the Relief That Went

Approved alterations to a protected building were zero-rated until 1 October 2012, when the relief was withdrawn and those works became standard-rated.² Repairs and maintenance were always standard-rated. It matters now mainly when reading old advice or an old quotation: any inclusive price for listed-building alteration work from before that date is 20% short of the same job today, and no amount of inflation adjustment finds the difference, because it was a tax change rather than a price change.

Why New-Build Costs Are Not a Benchmark for an Extension

Constructing a new dwelling is zero-rated; extending an existing one is standard-rated.² Two identical net rates of £2,500/m² therefore appear as £2,500 and £3,000 once VAT is on, so a new-build figure sits 16.67% below an extension figure on tax alone, before a single difference in the work.

This is the most common apples-to-oranges comparison in domestic cost writing, because new-build cost per square metre is widely published and widely read as a benchmark for an extension. It is not one. Before comparing any two per-square-metre figures, check they are on the same tax footing, and see our note on why a published building rate is not what you pay for the other corrections that sit between a published rate and a bill.

Energy-Saving Materials: A Significant Change

From 1 February 2024, the 0% VAT relief for installing energy-saving materials (ESM) in homes was extended to more technologies, including water source heat pumps, battery storage and smart diverters.⁵ Before April 2022 the relief in Great Britain was a 5% rate that depended on social policy conditions or a 60% threshold; the zero rate has no such conditions.⁵ The zero rate now applies to:

• Solar panels (PV and thermal)
• Wind turbines
• Ground, air and water source heat pumps
• Insulation (wall, floor, loft, roof)
• Heating and hot water controls, draught stripping, wood-fuelled boilers and micro CHP units
• Battery storage, whether retrofitted to an existing solar system or installed as a standalone battery charged from the grid

Windows are not on HMRC’s list of energy-saving materials, so replacement double or triple glazing is normally standard-rated.⁵ See our note on triple glazing for whether it pays back anyway. The zero rate is temporary and runs to 31 March 2027. From 1 April 2027 these installations revert to the reduced rate of 5%, not to 20%.⁵

What the relief attaches to is the installation, not the goods, and that catches people out in a way worth spelling out. HMRC is blunt about the counter sale: “the sale of energy-saving materials by a retailer is always standard-rated”.⁵ So buying a heat pump or a set of panels over the counter means paying 20% on the kit, whoever eventually fits it.

But there is a middle case the wording above can hide. If you buy the materials yourself and then pay somebody to install them, the installer’s work is still zero-rated, because HMRC relieves installing materials the customer bought elsewhere just as it relieves a supply and install.⁵ You pay 20% on the goods and 0% on the labour.

So there are three routes and only one of them is fully relieved:

On a heat pump unit costing £5,000 before VAT, that is £1,000 of VAT that a single supply-and-install contract would not have charged. It is worth pricing the one-contract route before assuming that sourcing your own kit is cheaper.

This is a meaningful saving: an £8,000 heat pump installation (before VAT and before grant; Boiler Upgrade Scheme grant in England and Wales: £7,500 for an air source heat pump) saves £1,600, and an insulation project costing £3,000 before VAT saves £600.⁶

The DIY Housebuilder VAT Reclaim Scheme

Self-builders and converters making a home for themselves or their relatives, rather than for a business, can reclaim VAT paid on materials through the HMRC DIY Housebuilder Scheme. This is one of the most valuable but under-used reliefs available to UK homeowners.

Who qualifies:

• People building a new home for their own use (not for sale)
• People converting a non-residential building into a dwelling
• People converting a derelict home that has not been lived in for 10 years or more before the work began⁷

What you can reclaim:

You can reclaim VAT on eligible building materials, goods that are “ordinarily incorporated” into the building (bricks, timber, insulation, windows, doors, kitchen units fixed to the wall, bathroom suites). You cannot reclaim VAT on:

• Professional fees (architects, structural engineers, surveyors)
• Plant, tools and equipment
• Consumables that are not incorporated in the building (sandpaper, white spirit)⁴
• Fitted furniture other than fitted kitchen furniture, carpets, and most electrical and gas appliances

How to claim:

You claim online or on form VAT431NB (new build) or VAT431C (conversion), with:⁴

• All VAT receipts and invoices
• The Completion Certificate issued by Building Control
• Evidence of planning permission and any other relevant consents

The deadline depends on when the work finished. For building work completed on or after 5 December 2023 you have six months from finishing; for work completed before that date it was three months.⁸ Almost every current claim is on the six-month rule, but the older limit still catches anyone finishing a long-running project whose completion date fell earlier. HMRC aims to process an online claim within 3 weeks, and a postal claim within 6 weeks, of receiving all the information it needs.⁴

How much can you reclaim?

On a self-build, the materials you buy are often around half of the total project cost. On a £300,000 build where you buy £150,000 of materials before VAT, the VAT reclaim could be up to £30,000. Even on smaller conversions, a reclaim of several thousand pounds is common.

Keeping Records for a VAT Reclaim

Good record-keeping from day one is essential. You cannot reconstruct receipts later if suppliers have gone out of business or closed accounts. HMRC tips:

• Keep every VAT invoice and receipt, and keep copies of anything you send, because HMRC does not return original documents⁴
• Ensure each receipt shows the supplier’s VAT registration number, a description of goods, the amount of VAT charged, and the date
• Create a spreadsheet tracking date, supplier, description, net amount, VAT amount, and receipt number
• Store digitally as well as physically in case of loss

Common Pitfalls

Assuming your contractor knows the correct rate. Contractors sometimes charge 20% when 5% applies (for example, on a long-vacant property). You are entitled to question this: the contractor is responsible for charging the correct rate and should hold evidence, such as proof of the empty period, to support it. Ask them to confirm which rate they are applying and why.

Missing the claim window. HMRC is strict about the DIY reclaim deadline, which is six months from completion for work finished on or after 5 December 2023.⁸ Do not wait until the Completion Certificate arrives to start organising receipts.

Including ineligible items. HMRC checks DIY claims, and an error can carry a penalty if it was deliberate or if reasonable care was not taken to prevent it.⁴ Be conservative and check HMRC Notice 708 for the definitive list of eligible materials.

Builder below VAT threshold. If you use an unregistered contractor, they cannot supply a VAT invoice for labour, and there is no VAT to reclaim on labour in any case. However, you can still reclaim VAT on materials you purchase directly.

Getting Advice

For projects where VAT savings are material, conversions, new builds, long-vacant properties, a one-hour consultation with a VAT specialist (typically £150–£300) is almost always worthwhile. HMRC’s VAT helpline (0300 200 3700) answers general questions, and DIY claims have their own DIY and House Building VAT Enquiries Team (0300 322 7073).⁸⁹ Where the law is genuinely uncertain for your circumstances, HMRC’s non-statutory clearance service can give written advice, which provides a useful paper trail if the rate is later questioned.¹⁰