Building work supplied in the course of constructing a new dwelling is zero rated, and so is the first sale, or first lease of more than 21 years, by the person who built it. No certificate is needed for ordinary dwellings; certificates are only required where the zero rate depends on the building being used solely for a relevant residential or relevant charitable purpose. Professional fees, plant hire and most white goods and carpets stay standard rated.

Which law applies?

Group 5 of Schedule 8 to the VAT Act 1994 zero rates the construction of qualifying buildings, the building materials supplied with that work and the first grant of a major interest in them. HMRC’s guidance is VAT Notice 708. A qualifying building is one designed as a dwelling or number of dwellings, one intended for use solely for a relevant residential purpose, or one intended for use solely for a relevant charitable purpose. This page concentrates on new homes; work to existing buildings is normally standard rated, with separate reduced rate reliefs for conversions and empty homes.

What counts as a new dwelling?

A building is “designed as a dwelling” only if every dwelling in it meets five conditions:

  • it consists of self contained living accommodation
  • there is no provision for direct internal access to any other dwelling
  • its separate use is not prohibited by a covenant, planning consent or similar provision
  • its separate disposal is not prohibited in the same way
  • planning consent has been granted for it and it has been built in accordance with that consent

So a “granny annexe” that cannot be used or sold separately from the main house fails, as does a house tied by planning to business premises. A condition that only restricts who may live there, such as agricultural workers, does not prevent zero rating.

The building must also be new. HMRC accepts these situations:

  • built from scratch after any existing building has been demolished to ground level (cellars, basements and the ground floor slab may be kept, and party walls with neighbouring buildings ignored)
  • a new building keeping no more than a single facade, or two on a corner site, where planning consent requires it to be kept
  • an extension or enlargement that creates an additional dwelling wholly within the new part, such as a new flat on top of an existing block
  • a garage built at the same time as the dwelling and intended to be occupied with it

A house that keeps parts of the old building after a partial demolition is not new for this purpose, and the work is standard rated.

Which services and materials are zero rated?

Zero rating covers services supplied “in the course of the construction” of the building, up to completion, and work closely connected with it. HMRC accepts:

  • demolition as part of a single project to build the new dwellings, site clearance, groundworks and securing the site
  • connecting water and power, access roads, drives, paths and patios within the site
  • soft landscaping, and planting where it is in a landscaping scheme approved under the planning consent
  • snagging by the original contractor under the same contract

Subcontractors working on new dwellings can zero rate their work too. Because the domestic reverse charge for construction applies only to standard and reduced rated services, it does not affect correctly zero rated new build work; see the construction reverse charge. Work done after completion, such as a conservatory fitted after the house is handed over, is work to an existing building.

Always standard rated: architects’, surveyors’ and consultants’ services (unless they are cost components of a single design and build contract), project management fees, plant hire without an operator, hire of scaffolding (although erecting it can be zero rated), on site catering, and tennis courts or swimming pools outside the house.

Building materials

Materials the builder incorporates take the same rate as the work, but only if they are “building materials”: articles ordinarily incorporated in a dwelling, other than furniture (except fitted kitchen furniture), carpets and most electrical and gas appliances. Boilers, radiators, sanitary ware, fitted kitchens, light fittings, solar panels and, since 26 August 2026, electric vehicle charging points are on HMRC’s list. Fridges, freezers, dishwashers, washing machines, bedroom furniture and carpets are not.

When is the sale of a new home zero rated?

The developer’s sale is zero rated where it grants a “major interest”: the freehold or a lease of more than 21 years (in Scotland, the owner’s interest or a lease of at least 20 years). It must be the first such grant by a person with “person constructing” status, meaning someone who built or commissioned the building or worked on it as a contractor. Other points:

  • with a long lease, only the premium, or the first rent if there is no premium, is zero rated; later payments are exempt
  • in shared ownership, the initial equity payment is zero rated; rent and later staircasing payments are exempt
  • the footprint, a reasonable garden and nearby parking can be zero rated with the house, but not a field or paddock
  • a plot sold before building is clearly under way is exempt unless the seller has opted to tax; see the option to tax
  • a holiday home that the buyer cannot occupy all year, or use as a main residence, cannot be zero rated; under 3 years old its sale is standard rated

A developer selling zero rated homes cannot recover VAT on items fitted in the home that would not be zero rated if a builder installed them, typically carpets, most fitted furniture and white goods. This “blocking” applies to show houses too. If a developer lets a new home on a short tenancy before selling, the input tax position may need adjusting under partial exemption. Whether a business builds to sell or to hold also affects its direct tax; see property developer or investor.

Which certificates are needed?

For buildings designed as dwellings, none: Notice 708 says there is no requirement to hold a certificate. Certificates are needed only where zero rating depends on the building being used solely for a relevant residential purpose (such as a care home, children’s home or student accommodation) or a relevant charitable purpose. In those cases:

  • the customer issues the certificate before the supply, using HMRC’s form for building work or for sales and long leases; both have force of law under Note 12 to Group 5
  • “solely” allows up to 5% non qualifying use
  • a subcontractor must not be given a certificate and always standard rates its work on a certificated building
  • the supplier must take reasonable steps to check the certificate; holding one does not guarantee zero rating
  • an incorrect certificate can lead to a penalty equal to the VAT not charged, unless there is a reasonable excuse
  • if qualifying use stops within 10 years of completion, a taxable charge can arise

A belated certificate can still be accepted if the customer can show the intended use at the time, subject to the 4 year limit on corrections explained in the four year cap.

What if I build my own home?

A self builder buys materials at the standard rate but can reclaim that VAT under the DIY housebuilders scheme, provided the house is a family home for the builder or relatives and planning permission was granted. Builders employed on the project can still zero rate their work. Only one claim is allowed: for homes completed on or after 5 December 2023 it must be made within 6 months of completion, and for earlier homes the limit was 3 months.

How does this work in practice?

Illustration only. A developer builds four houses for sale. The main contractor’s £800,000 invoice is zero rated. The architect charges £40,000 plus £8,000 VAT, which the developer recovers because it relates to zero rated sales. Carpets costing £12,000 plus £2,400 VAT are fitted before sale; that £2,400 is blocked. The freehold sales of all four houses are zero rated, and no certificates are involved.

What mistakes come up most often?

  • Treating a replacement house as new when part of the old structure was kept.
  • Zero rating an annexe that planning ties to the main house.
  • Zero rating architects’ fees or scaffold hire.
  • Recovering VAT on white goods and carpets in homes sold zero rated.
  • Asking for, or issuing, certificates for ordinary houses.
  • Missing the DIY claim deadline.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.