VAT on home building work: when you pay 20%, 5% or 0%
Most domestic building work is standard-rated at 20%. But three carve-outs, new builds, qualifying conversions, and certain energy-saving installations, can save you 15–20% of the build cost if you know how to use them.
Key facts
- Standard rate (20%) applies to almost all extension and renovation work.
- New-build dwellings: zero-rated (0%), VAT Notice 708.
- Empty home renovation (2+ years vacant): 5% reduced rate.
- Residential conversions that change the number of dwellings: 5% reduced rate.
- Energy-saving materials (heat pumps, insulation, solar): 0% until 31 March 2027.
- DIY Housebuilders Scheme: VAT reclaim available on materials for self-build new homes.
VAT is the most misunderstood line in domestic construction. Builders quote inconsistently, some net, some gross, some "plus VAT if applicable", and homeowners routinely discover the 20% in month two of the build, not month minus two of the budget.
If a quote doesn't tell you the VAT rate and the gross figure, the quote isn't finished.
This guide sets out which rate applies to which work, how to qualify for the reduced and zero rates, and the small set of evidence the contractor needs before they invoice.
The three rates, and which work falls where
| VAT rate | Work covered | Common examples | | --- | --- | --- | | 20% (standard) | Most domestic work to an existing single dwelling | Extensions, loft conversions, kitchen / bathroom refits, refurbishments, repairs | | 5% (reduced) | Qualifying conversions; properties empty for 2+ years; certain residential renovations | House to flats; flats to house; empty-home refurb | | 0% (zero) | New dwellings; qualifying energy-saving materials (until 31 Mar 2027) | New self-build; heat pump install; solar panels and battery |
Within those bands sit dozens of edge cases, HMRC's VAT Notice 708 ("Buildings and construction") is the canonical source. It runs to 80 pages for a reason.
The 5% rate in practice
This is the relief most homeowners miss. Two routes qualify a project for the reduced 5% rate:
- The property has been empty for at least 2 years immediately before the qualifying work begins. Evidence: Council Tax exemption records, empty-property notices from the council, or utility bills showing nil consumption.
- The qualifying services change the number of single-household dwellings, for example, splitting a house into two flats, combining two flats into a house, or converting a non-residential building (barn, office, public house) into a residence.
The 5% rate applies to the qualifying services (labour) and qualifying building materials supplied by a VAT-registered contractor as part of the same supply. The evidence pack goes to the contractor before they raise the first invoice, once VAT is wrongly charged at 20%, recovering it from HMRC is a contractor-only process and most won't bother.
The energy-saving zero rate
Since April 2022, qualifying energy-saving materials installed in residential property have been zero-rated for VAT. The relief was extended in 2024 and currently runs until 31 March 2027.
Eligible installations include:
- Air-source and ground-source heat pumps
- Solar photovoltaic and solar thermal panels
- Insulation (loft, wall, floor)
- Draught stripping
- Hot water and central heating controls (when installed with one of the above)
- Wind turbines, water turbines
- Batteries connected to qualifying systems (since Feb 2024)
The relief applies to the combined supply and install by the same contractor. If you buy a heat pump from one supplier and pay a separate installer, the relief is harder to capture cleanly.
DIY Housebuilders Scheme, for self-builders only
If you are building a new dwelling for your own occupation, the DIY Housebuilders Scheme lets you reclaim VAT on qualifying building materials. The contractor's labour should already be invoiced zero-rated (under VAT Notice 708 Section 3), so no VAT is paid in the first place on that line.
Practical points:
- One reclaim only, submitted within 6 months of completion using form VAT431NB (new build) or VAT431C (conversion).
- Keep every materials invoice and every certificate.
- The scheme does not apply to extensions, renovations, or properties used commercially.
- Mixed-use schemes (live/work) need careful apportionment up front.
Why this matters at budget stage
Most domestic VAT mistakes happen at one of two points: the quote stage, where VAT isn't shown clearly, or the close-out stage, where HMRC challenges a 5% invoice the contractor couldn't evidence.
Two practical disciplines avoid almost all of the pain:
- Quote in gross. Insist that every quote and every variation shows the VAT rate and the gross figure. "Plus VAT" is not a budget; it is a deferred surprise.
- Document eligibility early. If you think the 5% rate applies, build the evidence pack, Council Tax history, planning consent, intended-use letter, and give it to the contractor before the first invoice. Retrospective reclassification is a contractor's problem you don't want to inherit.
For most homeowner clients, our pre-build budget shows the VAT rate against each line and flags the items that might qualify for relief, so the headline figure is the real figure, not the net.
Frequently asked
- If I extend my home, can I claim back the VAT?
- No. Extensions to an existing single dwelling are standard-rated at 20% and the VAT is a final cost to you, there is no homeowner reclaim mechanism. The DIY Housebuilders Scheme only applies to new dwellings and certain qualifying conversions, not extensions. Budget gross of VAT from the start.
- What qualifies for the 5% reduced rate on renovation?
- Two routes: (1) the property has been empty for at least 2 years immediately before work starts (evidenced by Council Tax records or utility bills), or (2) the work changes the number of dwellings, for example, a house to two flats, or two flats back to a house. The reduced rate applies to qualifying services and materials supplied by a VAT-registered contractor. You need to get evidence to the contractor before they invoice, not after.
- Do heat pumps and solar panels really come without VAT?
- Yes, under a temporary zero rate introduced in 2022 and extended in 2024, qualifying energy-saving materials installed in residential property are zero-rated until 31 March 2027. The scope includes air-source and ground-source heat pumps, solar panels, insulation, draught stripping, wind/water turbines, and batteries connected to qualifying systems. The relief applies to the supply and install combined; standalone material supplies sit outside the relief.
- If I'm building a new house on my own land, can I reclaim VAT?
- Yes, the DIY Housebuilders Scheme lets you reclaim VAT on qualifying materials for a new dwelling built for your own occupation. The contractor's labour should be zero-rated direct (so no VAT is charged in the first place). You submit one reclaim within 6 months of completion using form VAT431NB. Keep every invoice; the scheme is documentation-heavy and one missing receipt can disqualify a line.
- What about a listed building?
- Until October 2012, approved alterations to listed dwellings were zero-rated. That relief was withdrawn. Listed-building work is now generally standard-rated at 20%, with very narrow exceptions for some new annexes and certain charity uses. Don't budget on the old rate, it is gone.
- Should I worry if my builder isn't VAT-registered?
- Most small builders aren't VAT-registered until they hit the £90,000 turnover threshold. Their invoices have no VAT line, that's legal, and on small jobs it's cheaper than using a VAT-registered firm. On larger work, the lower headline price often disguises a lower-capacity outfit; check trade references, not just the invoice.
