The removal of the zero rate for alterations to listed buildings was one of the few aspects of the Budget that hadn’t been trailed in the press. While repairs on listed buildings have always been subject to full rate VAT, if the work planned fitted the definition of an alteration, providing it had been granted listed building consent and was neither deemed a repair or maintenance, previously it qualified for zero-rate VAT.

The move to make alterations become taxable at the standard rate was unexpected, explains Karen Mulcahy of The VAT Consultancy* (01962 735350; www.thevatconsultancy.com). ‘Although the zero rate of VAT is being retained for substantial reconstructions of residential listed properties, the definition of ‘substantial reconstruction’ is being revised**. The effect is to limit the zero rate to works which amount to demolition and reconstruction from a shell.

‘Listed places of worship will also be affected, and although the Listed Places of Worship refund scheme is to be extended for approved alterations subject to VAT at the standard rate, there is no indication that the funding for the scheme is to be extended.’

Philip Eddell of Savills Country House Consultancy (01635 277 709) says this is a ‘big deal for owners of listed buildings, as most will be privately owned, reconstruction costs and materials tend to be more expensive, therefore restoration and improvement has always been proportionately more expensive.’

He continues: ‘At worst it will make listed buildings requiring extensive repair and improvement less attractive for private owners, which will ultimately affect capital values.’
Under the transitional arrangements, owners who have already entered into binding contracts for alteration works prior to last Wednesday, will continue to benefit from the zero rate if works are carried out up to March 20, 2013. These are draft proposals. The Government has entered into a period of consultation which runs until May 4, 2012.

* The Vat Consultancy are ProjectBook’s appointed Vat advisors for Vat related enquiries for owners of period and listed buildings Projectbook provides a wide range of information for the conservation, restoration, care and repair of period and listed buildings.

** An alteration is defined as something undertaken to the fabric of the building which is more than ‘trifling or insignificant’. According to HMRC’s own internal guidance, the fabric of a building “comprises the elements that characterise the structure as a building, such as walls, roofs, internal surfaces, floors, stairs and landings and all doors and windows. The fabric of the building also includes plumbing and central heating systems, and mains wiring and lighting systems.”

 

  • Eric Smalley

    Can you please advise me whether we can claim or have invoices zero rated for VAT purposes on a grade 1 listed church building, which had the lead pinched.
    The roof has had to be replaced with stainless steel.
    Thanks

  • Nigel Coward

    We have a grade 11 listed building in which we will be installing three en-suite bathrooms with listed building consent. What is the current position, is there any chance of getting an exemption from VAT?

  • Don Taylor

    What is the situation if substantial work is commenced on the property before 1st October 2012. Is vat recoverable? The coach which is listed, has been derelict for more than 10 years.

  • Mary Millner

    Listed Buildings VAT Budget Surprise
    Dear Sirs,
    Your article (Arabella Youens, 22 March 2012)was very helpful as the details are difficult to appreciate when embedded in a long document. Of particular interest to me because of our building project is ‘The effect is to limit the zero rate to works which amount to demolition and reconstruction from a shell.’ and I wonder how this is interpreted? We have a burnt out barn Grade II Listed which has to be rebuilt.
    Yours sincerely, Mary Millner

  • David Rawlins

    Clearly this would put us back in the situation where repair (and refurbishment) is rated at 20% but new-build and ‘substantial reconstruction’ (demolition and reconstruction) is zero-rated. Clearly this puts a further cash incentive on demolition rather than repair. The Government bean-counters are counting this as one of the ‘new taxes on the rich’ that will raise ‘five times more’ than the 50p tax rate’. Obviously some deliberate confusion here between ‘listed building’ and ‘mansion’. With the general unavailability of grants and funding, VAT exemptions are currently one of the only benefits and incentives available when it comes to listed buildings.
    George Osbourne seems to have operated on the assumption that Listed Buildings are owned by the wealthy owners of Mansions who can readily afford to pay the extra VAT that they have been under the current zero rated rules.

    This is forgetting the very large number of Grade II houses, as small as 1 Bedroom, owned or being purchased by the general public, perhaps attracted by the intrinsic character of such dwellings. This adjustment in VAT will have the effect of removing the prime incentive for such owners to use materials that are appropriate to the building that will not prove detrimental to the building. Instead, there will now be increased cost pressure to utilise ‘modern’ materials that can prove entirely detrimental to the building structure let alone its historic fabric and interest. There has already been comment by Heritage Specialists, IHBC etc with regard to significant concerns regarding the current Government proposals for the ‘Green Deal’, where poor installations and use of inappropriate ‘modern’ materials for, for example, solid wall insulation, are already resulting in a significant increase in condensation and damp issues in old buildings, irrespective of whether such buildings are Listed or not. Alterations and improvements to the existing structure may also include: introduction of services, damp proofing, roof coverings, drainage improvements, etc. A large part of a very large bill would previously, therefore, have been zero rated, thus making such projects economically viable.

    At least with a ‘zero’rated VAT benefit for Listed Building alterations, the owners of Listed Buildings are encouraged to obtain the correct specialist advice on such matters. The rescinding of this VAT exemption is highly likely, in my view, to impact on the marketability and demand for listed buildings when very little market incentive exists elsewhere and they are generally viewed as being more expensive proposition anyway. Prospective listed home buyers will now have to seriously consider whether the substantial additional costs of refurbishing a listed building, together with the vastly increased influence of conservation bodies and the effect they have on construction costs, are worth the investment/trouble; or, we have a situation where more purchasers will be inclined to avoid Listed Building legislation and carry out works which may be entirely bad for the building in question, both in terms of heritage AND in terms of long term condition. Specialist construction companies, already dissuaded from taking on employees due to strangulating employment laws will see further falls in workload at a time when the listed property refurbishment is one of the few buoyant areas in a severely depressed construction market.

  • David Rawlins

    Clearly this would put us back in the situation where repair (and refurbishment) is rated at 20% but new-build and ‘substantial reconstruction’ (demolition and reconstruction) is zero-rated. Clearly this puts a further cash incentive on demolition rather than repair. The Government bean-counters are counting this as one of the ‘new taxes on the rich’ that will raise ‘five times more’ than the 50p tax rate’. Obviously some deliberate confusion here between ‘listed building’ and ‘mansion’. With the general unavailability of grants and funding, VAT exemptions are currently one of the only benefits and incentives available when it comes to listed buildings.
    George Osbourne seems to have operated on the assumption that Listed Buildings are owned by the wealthy owners of Mansions who can readily afford to pay the extra VAT that they have been “avoiding” under the current zero rated rules. This is forgetting the very large number of Grade II houses, as small as 1 Bedroom, owned or being purchased by the general public, perhaps attracted by the intrinsic character of such dwellings. This adjustment in VAT will have the effect of removing the prime incentive for such owners to use materials that are appropriate to the building that will not prove detrimental to the building. Instead, there will now be increased cost pressure to utilise “cheaper” modern materials that can prove entirely detrimental to the building structure let alone its historic fabric and interest. There has already been comment by Heritage Specialists, IHBC etc with regard to significant concerns regarding the current Government proposals for the “Green Deal”, where poor installations and use of inappropriate “modern” materials for, for example, solid wall insulation, are already resulting in a significant increase in condensation and damp issues in old buildings, irrespective of whether such buildings are Listed or not. Alterations and improvements to the existing structure may also include: introduction of services, damp proofing, roof coverings, drainage improvements, etc. A large part of a very large bill would previously, therefore, have been zero rated, thus making such projects economically viable.
    At least with a “zero” rated VAT benefit for Listed Building alterations, the owners of Listed Buildings are encouraged to obtain the correct specialist advice on such matters. The rescinding of this VAT exemption is highly likely, in my view, to impact on the marketability and demand for listed buildings when very little market incentive exists elsewhere and they are generally viewed as being more expensive proposition anyway. Prospective listed home buyers will now have to seriously consider whether the substantial additional costs of refurbishing a listed building, together with the vastly increased influence of conservation bodies and the effect they have on construction costs, are worth the investment/trouble; or, we have a situation where more purchasers will be inclined to avoid Listed Building legislation and carry out works which may be entirely bad for the building in question, both in terms of heritage AND in terms of long term condition. Specialist construction companies – already dissuaded from taking on employees due to strangulating employment laws will see further falls in workload at a time when the listed property refurbishment is one of the few buoyant areas in a severely depressed construction market.