VAT is the biggest hidden variable in a build budget, and most people simply pay the standard 20 percent. On the right project, a lower rate can save tens of thousands, so it is worth understanding before you sign anything.
Every element of building work falls under one of three VAT rates. Knowing which applies to your project is the first step.
| Rate | When it applies |
|---|---|
| Standard (20%) | Most work to an existing, occupied home: extensions, renovations, repairs and improvements, and the professional fees alongside them. |
| Reduced (5%) | Certain conversions, and renovations to homes that have been empty for at least two years. Applies to both labour and materials. |
| Zero (0%) | The construction of a genuinely new dwelling. Self-builders reclaim their VAT through a special scheme. |
Building a brand-new home is one of the few things in construction that carries no VAT at all.
The construction of a new dwelling is zero-rated. A VAT-registered contractor does not charge VAT on the qualifying labour, and materials supplied and fitted as part of the build are covered too. If you are a self-builder buying materials yourself, you reclaim the VAT afterwards through HMRC's DIY Housebuilders Scheme (VAT Notice 431NB), so a self-build effectively ends up VAT-free on the qualifying elements.
Keep every invoice and receipt from day one. The reclaim is made after completion, and it is only as good as your paperwork.
This is the rate most people miss, and where the biggest savings hide on the right project.
The reduced 5 percent rate can apply to:
Crucially, the contractor charges the correct 5 percent rate at source; you do not pay 20 percent and claim it back. So the VAT position has to be established, and evidenced, before the work begins.
For most homeowners extending or renovating a home they live in, the standard rate applies.
Extensions, refurbishments, new kitchens and bathrooms, and repairs to an occupied home are standard-rated at 20 percent, and so are the architect and consultant fees. There is no reclaim on ordinary home improvement work. It is simply part of the budget, and it should be shown clearly in any quote.
People often believe work to a listed home is VAT-free. It is not. The old zero rate for approved alterations to listed dwellings was withdrawn in 2012, and such work is now standard-rated like any other. Do not budget on the assumption that a listing saves VAT.
The rate is decided before you start, on evidence. Sort it early and it is a saving; leave it late and it is lost.
On a conversion or an empty home, the difference between 20 percent and 5 percent is a 15 percent swing on the entire bill, labour and materials. On a large project that is tens of thousands of pounds. It is the single most valuable thing to check before you commit.
We set out the VAT position clearly in our costings, flag where a reduced or zero rate may apply to your project, and work with your accountant so nothing is missed. On new builds and qualifying conversions, getting the VAT right from the start is part of a properly costed programme.
This is general guidance, not tax advice. VAT rules are set by HMRC (see VAT Notice 708), have detailed conditions, and should be confirmed with a qualified accountant for your specific project.
General guidance for 2026, written for homeowners in Surrey and Hampshire. It is a summary, not professional advice; confirm the details for your specific project.
We will set out the costs clearly, including the VAT position for your project, before any work begins.