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Raising the Finance
Providing you have a regular income and a reasonable credit history, you should have no difficulty in obtaining a loan to build your own home or to undertake a renovation or conversion project.
It has been reported to us by many of our clients that The Mortgage Business is particularly appropriate for those who are self employed and/ or require self-certified mortgages. Follow the link: The Mortgage Business for more information.
In addition, whilst most lenders provide finance in arrears, there are several that are happy to provide finance in advance to cover stage payments. Some of these are listed below and again, follow the links to their home pages.
There are many other Mortgage Companies on the market who cater for self builders and renovators so use the internet to its full potential to source a product that is right for you.
Capital Gains Tax
Capital Gains Tax is not levied on the sale of your ‘principal private residence’, so the profits from a homebuilding or renovating project are usually totally free of this tax, regardless of the sum involved. There is no published guidance but a period of 12 months is broadly accepted as the period that the dwelling must be occupied before its sale in order to distinguish private homebuilders from commercial developers who might seek to avoid taxation by briefly occupying their developments before selling. If you are a repeat self builder, then you should take care not to fall foul of Capital Gains Tax and in any instance we would always advise that you seek the formal advice of an accountant.
VAT & Self Build
One advantage of building a new house, as apposed to renovating or extending, is that all of the building work is free of Value Added Tax (VAT), which means a saving of 17.5% at the current rate. If you are using a VAT registered contractor, then all of their invoices for labour and materials should be zero rated to exclude VAT. If you are managing the project yourself and buying materials, you will have to pay the VAT but will be able to claim it back on completion of the project by applying to your local Customs & Excise VAT office. Full details of the refund scheme are available from your local VAT Enquiries Office (listed under Customs & Excise in the phone book) or by following the link below. A leaflet entitled VAT for ‘do-it-yourself’ builders and converters (or VAT Notice 719) will be sent to you on request.
HM Customs & Revenue
The main considerations of the scheme are:
• You are only entitled to claim back VAT if your house is a new building and not an extension and was not constructed in relation to any business activity.
• Your house must be built with the intention of residing in it and not for the purposes of selling or leasing.
• Where you are buying your own materials you should keep all receipts for submission with your claim.
• Where a builder is employed for the supply of materials and/ or labour you should not be charged VAT for either. (If you are, contact your local VAT enquiries Office before you make any payment). Being registered for VAT, the builder will be able to claim back the VAT on their own return.
• You will not be able to claim back VAT for professional services, e.g. Architect, surveyor, engineer etc.
• You will not be able to claim back VAT on hire of equipment e.g. JCB, scaffold, power tools etc. However, you may be able to claim if a labour element is involved e.g. JCB and driver.
• You can only make one claim for a VAT refund and it must be made within three months of completion (receipt of a completion certificate from your Local Authority). Make sure that all invoices, the planning permission and proof of completion are sent to the VAT office with the claim form.
• You should receive a refund within 30 days of receipt of your claim.
• You do not have to do any of the building work yourself except as the organiser of the construction. You can employ any specialist help if you need.
VAT & Conversions
Work involved in creating a ‘new dwelling’ through the conversion of an existing building is also largely free of VAT. VAT registered builders much charge the reduced rate of 5% on the supply of labour and materials which you can later reclaim on completion of the project via your local Customs & Excise office. Details are outlined in the leaflet entitled VAT refunds for ‘do-it-yourself’ builders and converters (VAT Notice 719). Renovation projects are not considered to be ‘new dwellings’ and are therefore fully rated for VAT unless the property has been empty for 3 years or more, or if you are changing the number of units, in which case a reduced rate of 5% is applied. Properties abandoned for 10 years or more are treated as conversions (largely free of VAT).
VAT & Listed Buildings
Work involved in carrying out ‘approved alterations’ to Listed Buildings can be zero rated by VAT registered contractors, providing the work has been granted Listed Building consent and is neither a repair or maintenance. Details are available from Customs & Excise and are detailed in VAT – Buildings and Construction (VAT Notice 708).
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