The Reduced Rate of VAT on property was designed to encourage Urban Regeneration and the ‘recycling’ of Brownfield sites (rather than the development of Greenfield sites). There are a number of different scenarios resulting in the same 5% VAT rate – although the breadth of the savings is different.


The key factor is that the property must have been uninhabited for a minimum of 24 months prior to Works commencing (Note: uninhabited not uninhabitable). HMRC take the stance that all properties are occupied unless proven to the contrary, with them placing very little weight on circumstantial evidence.

VAT on Empty Properties


From non-residential use into residential dwellings. Care needs to be taken with properties that may contain residential areas (i.e. public houses) where the ‘pre conversion’ use cannot always be seen as ‘non-residential’.

The current relaxation of Planning Rules has meant a huge increase in schemes to convert offices into flats – works falling squarely into an ‘eligible’ conversion. Scope also exists for those properties treated as sui generis – an example being residential space above shops – where they are neither part of the retail unit nor a self-contained dwelling. Often difficult to establish, but can result in the works being seen as a ‘non-residential’ conversion and thus suitable for the 5% rate.


Although intended to apply where additional dwellings are created, the actual wording within the VAT guide is ‘a qualifying conversion’ and this permits both an increase in units (houses into flats) and decrease in units (the current trend to amalgamate flats back into family dwellings).

In all instances the definition of a dwelling is key, and just creating separable or private accommodation is insufficient (a granny annexe or au pairs’ accommodation for example).


Whatever the applicable rate, VAT relief is a two stage process – why does it qualify for something other than 20% (with of course accompanying evidence) but also to what extent the relief applies. No scheme will qualify 100% (there are always items specifically prohibited from the lower rates – certain fixtures, fittings & equipment for example), but also each type of scheme has a different application.

Empty VAT relief is the most generous – surprisingly it applies to both renovation works and improvements, including enlargement & extensions.

Conversions and change in number schemes are limited to ‘works necessary for the conversion’ and greater care is required in determining the VAT saving. Before any Contractor can reduce rate their invoices it is mandatory for them to hold evidence of why the 5% rate is applicable and, more importantly, to which costs it applies (HMRC refer to this as an ‘apportionment’).

We can work with you and your Contractor to supply all of the paperwork and supporting evidence HMRC would expect them to hold / submit – finding the middle ground to ensure they charge VAT correctly whilst ensuring you (the property owner) benefits in full from the relief.

Please contact us to informally explore the scope for VAT savings on your scheme – and if we feel we can bring value or deliver VAT savings – what fee would be required for the formal process. Our Helpline is however wholly free of charge.


You can contact our Free VAT Helpline 24 hours a day using the online form or email

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    Berthold BauerProperty Conversion