VAT and Historic Buildings

Julian Potts



The cost of embarking on the restoration or renovation of a historic building can be substantial. This is especially the case when the building requires extensive remedial works or the use of specialist materials and craftsmanship to satisfy the conditions of listed building consent. To then have these costs multiplied by 17.5 per cent and paid to HM Revenue & Customs (HMRC) as VAT is a further financial burden. Unlike many businesses, occupiers of private historic homes cannot register for and recover this VAT.

However, it is not all bad news. The UK VAT regime has some very beneficial VAT breaks (in particular, the zero VAT rate) for certain types of construction expenditure which actually go beyond the remit of the current European VAT rules on the application of reduced VAT rates. Well known beneficiaries of these zero-rating rules are occupiers of qualifying listed property carrying out ‘approved alterations’.

The fact that alteration works are ‘rewarded’ in this way seems illogical to many people. The truth is that at one time all alteration works to all buildings were zero-rated, whether listed, unlisted, residential or commercial. This was until the European Commission reigned in the UK government in the 1980s and the zero-rate for alterations was drastically whittled down. It now only applies to certain works on certain listed buildings.

In many instances, the zero-rate still achieves a good effect as some listed buildings have undergone unsympathetic alterations in the past, and new owners seeking to reverse these changes can benefit from VAT-free works. However, there are other occasions where repair and maintenance works suffer the full VAT charge, for instance, the removal of iron cramps in stone work where a reduced VAT rate would seem to be sensible for works that are protecting and preserving the country’s built heritage.

Although the scope of the zero-rates in the UK cannot be widened due to restrictions in the European VAT legislation, there is a five per cent VAT rate that could be utilised for repair works. At present, there is no five per cent rate for repair of historic buildings per se, but there are various other five per cent rated works that may be applicable to construction works in general including those to historic dwellings.

The successful application of the reduced VAT rates requires detailed knowledge of the conditions of the VAT legislation. For example, there are five different types of dwelling defined in the VAT rules. Subtle differences in definitions can affect entitlement to savings.


In general, VAT can be saved in three ways:

1 by paying your supplier at one of the reduced rates available in the UK – either five per cent or zero per cent rather than the standard rate of 17.5 per cent thus saving 12.5 per cent or 17.5 per cent of the VAT on qualifying expenditure

2 by recovering the VAT on expenditure incurred in the course of VAT-able business activities

3 by application of one of the special schemes giving non-VAT-registered persons the chance to reclaim VAT in certain circumstances, such as VAT refunds for DIY builders and converters.


The following is an introductory overview to the main VAT reliefs applicable to construction services to existing buildings.

Approved alterations of a protected building
Services provided in the course of an ‘approved alteration’ of a ‘protected building’ are VAT zero-rated. The zero-rating extends to include building materials where these are supplied by the same contractor and are being incorporated into the building in question.

There are various phrases from the VAT legislation which require further clarification as follows:

Approved alterations are works of alteration to a building that both have and require listed building consent but excluding works of repair and maintenance, or any incidental alteration to the fabric of the building which results from carrying out repairs or maintenance works.

A protected building is a listed building or scheduled monument that is also one of the following types of building:

  • a building designed to remain as or become a dwelling or number of dwellings – this is defined in the VAT rules as a dwelling that is self-contained and has no direct access to another dwelling, and its separate use or disposal is not prohibited by the terms of any covenant, statutory planning consent or similar provision
  • a building intended for use solely for a relevant residential purpose – this is a residential building which has an element of shared living or could be regarded as an institution, including nursing homes and student halls of residence
  • a building intended for use solely for a relevant charitable purpose – this is a building used by a charity other than in the course of a business or as a village hall or similarly in providing social or recreational facilities for a local community such as a church or a community centre.

Builders carrying out qualifying works to relevant residential and relevant charitable type buildings will also require certification from the operator of the building.

A protected building includes a separate garage which is created from a building of the same age as the main listed building. Works to other outbuildings (even if their use is as part of an extension of the main house and are in the curtilage of the listed building) cannot be zero-rated unless the outbuilding is a qualifying dwelling in its own right.

This interpretation has not always been the case, but since the 2004 House of Lords decision in Zielinski Baker and Partners, this less generous approach has been confirmed.

Landscaping is also excluded from this zero-rating.

In the Zielinski Baker case the owner of a listed dwelling had been granted listed building consent for the conversion of an outbuilding in the grounds of the house to form a games room and changing facilities and the construction of an adjoining indoor swimming pool. Zero-rating had been sought for the alteration works as being part of the protected building, however it was eventually held in a House of Lords decision that the outbuilding was not part of the ‘protected building’ for VAT purposes and as such VAT at 17.5 per cent was applicable.

Examples that HMRC give of works that could qualify for zero-rating, assuming all other conditions are met include:

  • extensions
  • opening/closing doorways
  • installation of new windows in new
  • replacement of a flat roof with a pitched roof
  • extending wiring and plumbing systems.

Examples of works of repair and maintenance which would not be zero-rated include:

  • redecorating
  • re-wiring
  • re-pointing
  • damp-proofing
  • replacement of rotten windows.

In each case the specific circumstances of the works would need to be considered. If they are closely connected to alteration works they may
also qualify for zero-rating.


When a conversion results in a ‘changed number of dwellings’, qualifying services provided in the course of the work are five per cent VAT rated. Building materials for the work are also five per cent VAT rated where the supplier (the builder or contractor for example) is also providing reduced-rated services, provided they are for the same building, of course.

A ‘changed number of dwellings’ could include either an increase or decrease in the number of dwellings in a building.

The five per cent rate is also applicable to conversions involving multiple occupancy dwellings and ‘relevant residential purpose’ buildings such as a nursing home or student halls of residence. Various conditions apply to determine the extent of the qualifying services.


Where qualifying residential premises have been unoccupied for at least two years, qualifying services provided in the course of renovating or extending the building may also be charged at the five per cent VAT rate. Building materials supplied to a person to whom the supplier is also providing reduced rated services which include the incorporation of the materials into the building in question are also five per cent VAT rated.

Installation of energy saving materials
The supply and/or installation of certain listed energy-saving materials qualify for a five per cent VAT rate. This includes insulation, draught-proofing windows, hot water and heating control systems. The list is updated on a regular basis.

Building materials
Not all building materials qualify for the reduced rates described above. Pre-finished and prefabricated furniture (excluding kitchens), materials for fitted furniture, certain gas and electrical appliances and carpets for example, are all likely to be charged at the full VAT rate.

Professional fees
The provision of professional fees in the UK is generally VAT standard rated at 17.5 per cent. In certain projects where a design and build or management contracting procurement route is utilised, HMRC does state that these services may follow the VAT liability of reduced or zero-rated construction services.


The sale or leasing of historic buildings will be either i) VAT exempt, which means that although VAT is not charged on disposal, VAT on development costs are not recoverable; or ii) VAT taxable at either 17.5% or 0% VAT in which case the majority of VAT incurred on development costs will be recoverable. Zero rated sales would apply to the sale of dwellings created from non residential buildings or from listed buildings that have been substantially reconstructed to create those dwellings. Commercial property is likely to require application of the ‘option to tax’ rules if VAT recovery is desired. See the table for a summary of the VAT rules applicable.


VAT refunds for self-builders and converters
Where a private individual converts a non-residential historic building into a new dwelling, they may be able to make an application to HMRC for a refund of VAT incurred on materials and five per cent rated construction services. The scheme requires the correct VAT rates to be applied by any contractors engaged in the first place. The overall effect is to place the home creator in the same position as a VAT-registered property developer selling a new dwelling.

Listed Places of Worship Grant Scheme
This scheme provides a grant to listed places of worship whereby a grant equal in value to the VAT incurred on the cost of certain repair and maintenance works and associated professional fees is given. Information on the scheme can be found at

Memorial Grant Scheme
A further scheme for reclaiming VAT on the cost of construction, renovation or maintenance of certain memorials has been introduced. This is operated along similar lines to the Listed Places of Worship Grant Scheme. The relevant website detailing the application of the scheme is


Nature of supply

VAT treatment

General construction works

VAT standard-rated at 17.5 per cent*

Separate provision of goods such as building materials

VAT standard-rated at 17.5 per cent**

Approved alterations to protected buildings

VAT zero-rated (certification may be required)

Conversion of non-residential building to new dwellings by a housing association

VAT zero-rated

Adaptations for disabled persons

VAT zero-rated, subject to receipt of eligibility declaration

Certain non-building materials including carpets, certain gas and electrical appliances and fitted furniture

VAT standard-rated at 17.5 per cent if non-building materials; other building materials VAT zero-rated or reduced rated if part of qualifying service

Services of professional consultants such as architects, surveyors, project managers

VAT standard-rated at 17.5 per cent, but note design-and-build and management contracting routes

Renovation of existing dwelling

VAT reduced-rated at five per cent if derelict for longer than two years, otherwise VAT standard-rated at 17.5 per cent

Residential conversions

VAT reduced-rated at five per cent if the conversion results in a changed number of dwellings or a house in multiple occupation, or if it is a ‘special residential’ conversion

Installation of energy-saving materials and security goods

VAT reduced-rated at five per cent, subject to specific criteria being met

Certain housing alterations for elderly people to assist mobility

VAT reduced-rated at five per cent

* Listed places of worship may be eligible for a refund through the Listed Places of Worship Grant Scheme; The Isle of Man also has a trial reduced rate of five per cent for home improvements.
** VAT on goods may be recoverable if purchased by taxable business, or if they form part of a claim made by a DIY builder or converter creating a new dwelling.


Nature of property transaction

VAT treatment of sale or rental income

VAT recovery position on re-development costs

Sale or lease of redeveloped historic property for commercial purposes

Default position: VAT exempt

No VAT recovery*

Option to tax made so VAT charged on income at 17.5 per cent

VAT recovery possible**

Exceptions to the default position include hotels and holiday lets; VAT standard-rated at 17.5 per cent unless reduced-value rule applies for long-stay visitors in hotels.

VAT recovery possible

Sale or lease of redeveloped historic property for residential purposes

Substantial reconstruction of protected building: zero-rated if first grant of major interest (freehold sale or lease greater than 21 years) in qualifying residential or charitable building

VAT recovery possible***

Non residential conversion: zero-rated if first grant of major interest (freehold sale or lease greater than 21 years) in qualifying residential or charitable building

VAT recovery possible***

Existing residential property unoccupied for 10 years: zero-rated if first grant of major interest (freehold sale or lease greater than 21 years) in qualifying residential or charitable building

VAT recovery possible***

* Unless de minimis rules apply 
** Option to tax subject to anti-avoidance legislation
*** Residential developers cannot recover VAT on ‘blocked’ building materials.



This article is reproduced from The Building Conservation Directory, 2008. The article provides an introduction to VAT for historic buildings, and the conditions required for zero rating alterations.


JULIAN POTTS is a director of property tax consultancy Landmark PT Ltd, which has offices in Bath and London. He specialises in offering VAT planning advice for private individuals, building contractors and property developers. His recent publications include VAT in Property & Construction published by RICS Books.

Further information




VAT consultants
Site Map