Rebuilding wins converts as taxman heads for the door

TURNING redundant commercial buildings into houses is never cheap, but thanks to a change in VAT rules it has become a little less expensive.

Prior to July this year, because of a number of inconsistencies in the VAT liabilities of buildings, the conversion of a non-residential building into a residential dwelling was subject to the full rate of 17.5 per cent. But since 21 July, conversions of buildings such as barns, chapels and factories have been zero-rated as long as they are done by individuals for their own use.

White goods - fridges, cookers or carpets - are still subject to 17.5 per cent VAT, but this tax can now be reclaimed on most forms of ventilation, burglar alarms, fire alarms and fire safety equipment.

Sheila Shane-Carter is an architect working in Leicestershire who has done several conversions, including her own chapel in Burton Overy near Leicester. She used a builder and separate sub-contractors to convert the chapel into an unusual four-bedroomed house with split-levels and balconies. She oversaw the project herself, which took about a year.

This was nine years ago and although VAT was slightly less onerous then at 15 per cent, the project - which cost pounds 50,000 - would have been a couple of thousand less under the new VAT rules.

Last year Miss Shane-Carter designed a barn conversion for one of her clients, Jean Chell who lives in Newtown Linford, Leicestershire.

As this was a listed barn, Mrs Chell was able to reclaim a substantial amount of VAT because any new work done to a listed building is also zero rated, although repairs undertaken are still liable. Mrs Chell's home cost pounds 138,000 to build and took about 18 months to complete because the first builder went into liquidation. After a gap of two and a half months, she found a second builder to complete the remaining half of the work. This builder's contract was for pounds 69,761.20 gross, of which pounds 8,774.75 was liable for VAT. Mrs Chell's total VAT bill for the whole project was about pounds 3,000. If the barn had not been listed, the VAT bill might have been as much as pounds 12,000. With the new regulations she would have paid even less than pounds 3,000.

People who build their own homes will also benefit from the changes. Self builders have always been able to claim back VAT on certain materials and supplies when they construct a home from scratch, and now they will be similarly in pocket if they convert a non-residential building themselves.

Around 27,000 people build their own homes in Britain every year, and self building is still one of the relatively buoyant sectors of the housing market.

The fourth National Self Build Homes Show is at Alexandra Palace, London N22, 16-18 September, 10am-6pm. Ticket hotline 081-546 5000 ( pounds 5 in advance, pounds 7 on the door).

(Photograph omitted)