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Self-builders due £30,000 on average in VAT rebate

Research shows one in four self-builders fail to claim back VAT

A quarter of people who build their own home are failing to reclaim VAT on their building materials, new research shows.

Self-builders could be owed on average around £30,000 each from HMRC, primarily because they failed to claim a VAT rebate, according to data collected by the Homebuilding & Renovating Show.

If you’re considering building your own home, don’t miss out – we explain how to claim your rebate and what expenses are included.

  • To find out more about how self-build and custom-build projects work, check out our full guide on building your own house.

Self-build: millions unclaimed in VAT refunds

Millions of people aspire to build their own home, but only around 10,000 each year currently turn their dreams into reality.

It’s easy to see the attraction – designing your own home can be a creative and fulfilling process, and may be considerably cheaper than buying from a developer.

The research shows that the average amount spent on building a new home is £305,943 – and that’s excluding the cost of buying the land. If more than a quarter (28%) of self-builders are failing to reclaim VAT on their building costs, that means HMRC is benefiting to the tune of around £109m.

Claiming VAT on your building materials is relatively straightforward and you have a number of avenues – 83% of those who claim do so through the government’s 431B form, 16% through their builder, and just 1% through their own business.

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Are you missing out on a rebate?

To quality for a VAT refund on your building materials, you’ll have to adhere to the following rules:

  • Your property must be a self-contained residential premises for personal use. This means that while you can use a room for working from home, you can’t run a business from the property or let it out. If you’ve got an annex (such as a granny flat), you’ll need to make sure it can’t be sold separately from the main property.
  • You can’t claim on all of your labour costs. You’ll be able to get a VAT refund for labourers working on services such as plumbing and plastering – but not for ‘professional or supervisory fees’, such as architects and surveyors. You can learn more about this in the government’s guide to VAT on self-build.
  • You can’t claim for some household items. Generally, you can only claim for materials that are permanently attached to the building. But certain fitted household items might also not qualify for a tax refund, for example, built-in furniture and some electrical appliances.

Building your own home: how does it work?

The government is hoping to double the number of self-built homes per year to 20,000 by 2021, primarily through the Right to Build initiative.

Currently, councils in England must keep compulsory registers of people interested in a self-build project – with the intention of finding them a serviced plot within three years.

Building projects usually fall in to one of two categories: self-build or custom-build.

Self-build involves a hands-on approach and overseeing the project from start to finish – either by taking on some of physical work yourself or employing and managing contractors.

Custom-build differs in that you work with an established housebuilder. You will usually buy a plot of land on a development and work alongside the developer to choose the right design, thereby cutting some of the stresses of obtaining planning permission.

Getting a mortgage for a self-build project

One of the main attractions of building your own home is the uplift in value – a self-built home is generally worth around 20% more on completion than its combined land and build cost.

That said, getting a mortgage can be a challenge. While some mainstream banks offer self-build mortgages, they’re more readily available from specialist lenders.

You’ll usually need a deposit of at least 25% and could face limits on how much you can borrow – many lenders cap borrowings at 75% of the cost of the land and 60% of the cost of the build.

The biggest challenge, however, is cashflow. Unlike traditional mortgages, funds for self-build are usually released at different stages of the project – so if you need to pay many of your costs up front, you might need to have significant savings set aside until your funds are released.

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