A builder can charge VAT at 5% on renovating or altering a home that has not been lived in during the two years immediately before the work starts. The relief is in Group 7 of Schedule 7A to the VAT Act 1994, HMRC explains it in section 8 of VAT Notice 708, and a letter from the local authority’s Empty Property Officer confirming two years without occupation is enough evidence on its own.

What exactly is the two year empty condition?

Paragraph 8.3.1 of Notice 708 says the work can be reduced rated only if the qualifying residential premises have not been lived in during the two years immediately before the renovation starts. The period runs back from the day work begins, not from the date of purchase or the date of the contract. A house that was empty for five years but had a tenant for three months last year fails the test.

Qualifying residential premises means a single household dwelling, a multiple occupancy dwelling such as bedsits, or a building last used for a relevant residential purpose that will be used solely for that purpose again (paragraph 8.2). Where a care home or similar institution was made up of several buildings on one site used together, none of those buildings can have been lived in during the two years. HMRC gives the example that a dormant building in the grounds of an operating home cannot qualify (paragraph 8.3.1).

The work itself must be renovation or alteration of the existing home. Changing the number of dwellings is a different relief, covered in residential conversions, and that one has no empty period.

What occupation can be ignored?

Paragraph 8.3.3 lets you disregard:

  • illegal occupation by squatters;
  • occupation by guardians installed by or for the owner to deter squatters and vandals, whether they pay a low rent short of a formal tenancy or are paid to be there;
  • non residential use, such as storage for a business.

A guardian is not the same as a caretaker or housekeeper who lives at the property permanently; that is occupation. Occasional use counts as well. If the house was used as a second home at any point in the two years, the reduced rate is not available.

What evidence does HMRC expect?

The builder who charges 5% may have to show that the property was not lived in during the two years before work started (paragraph 8.3.2). HMRC accepts proof from:

  • Electoral Roll records;
  • Council Tax records;
  • utility companies;
  • Empty Property Officers in local authorities;
  • any other source that can be considered reliable.

A letter from an Empty Property Officer certifying that the property has not been lived in for two years is sufficient by itself. If the officer is unsure when the property was last occupied, they should give a best estimate, and HMRC may then ask for supporting evidence. In practice the customer obtains the letter and passes a copy to the builder before the first invoice. Council Tax records are often a useful starting point because many authorities track long term empty homes; see council tax premiums on second and empty homes.

No certificate is needed for work on a dwelling (paragraph 17.1). A certificate is needed only where the renovated building will be used solely for a relevant residential purpose (paragraph 8.2.1).

What if someone moves in before or during the work?

Paragraph 8.3.4 sets out two rules.

The first rule

If the premises were empty for the two years before work starts, all the work is reduced rated even if people move in while it is under way, as long as they move in on a day after the work starts. If anyone is living there when work starts, or lived there during the previous two years, all the work is standard rated.

The second rule

This applies only to single household dwellings. A new owner who moves in straight away can still get 5% if all of these are met:

  • the dwelling was not lived in during the two years before the occupier acquired it;
  • no renovation or alteration was carried out in those two years, ignoring minor works to keep it dry and secure;
  • the services are supplied to the occupier, so a subcontractor working for a main contractor must standard rate;
  • the work takes place within one year of the occupier acquiring the dwelling.

Which work gets the 5% rate?

Paragraph 8.4 mirrors the conversion relief. Installing building materials qualifies, as does repair, maintenance such as redecoration, and improvement such as an extension or double glazing carried out to the fabric of the dwelling during the renovation. Work within the immediate site for water, power, heat, access, drainage, security or waste disposal also qualifies.

Installing goods that are not building materials (carpets, fitted bedroom furniture), scaffolding, hire of goods, landscaping and professional fees from architects or surveyors stay standard rated. A garage renovated, built or converted at the same time and occupied with the home can be reduced rated (paragraph 8.4.1). Work that needs planning consent or building control approval that has not been granted is standard rated (paragraph 8.4.2), and a mixed contract must be apportioned or it all stays at the standard rate (paragraph 8.5).

What does it look like in numbers?

Illustration only. Sam buys a house that has been empty for three years and has an Empty Property Officer letter confirming it. Sam engages a builder before moving in for a £60,000 renovation of the existing layout: new roof, rewiring, replastering and a new bathroom. VAT at 5% is £3,000 instead of £12,000 at 20%. New carpets costing £4,000 are fitted by the same builder and are standard rated at £800.

Illustration only. Alex buys a similar house but moves in the week after completion and asks a builder to start eight months later. The house was empty for the two years before Alex bought it and no renovation was done in that time, so the second rule applies. The builder contracts directly with Alex and can charge 5%. If the work started 13 months after purchase, it would be standard rated.

How is this different from the 10 year rules?

The two year test only sets the rate the builder charges. Two other reliefs use a longer period.

  • Zero rated sales. A developer can zero rate the first sale or long lease of a converted building only if, among other conditions, it has not been lived in during the 10 years before the sale (paragraph 5.3.2). A developer who renovates a two year empty house gets the 5% rate from the builder, but selling the house is normally exempt, so the VAT on costs is usually irrecoverable.
  • The DIY scheme. A person converting a derelict residential property into a family home can reclaim VAT under the DIY housebuilders scheme only if it has not been lived in for 10 years or more before the work began. HMRC’s conversions guidance requires an Empty Property Officer letter, or alternatives such as Electoral Roll, Council Tax or utility records.

What mistakes come up most often?

  • Measuring the two years from the purchase date instead of the day work starts, outside the second rule.
  • Ignoring a period of use as a holiday or second home.
  • Relying on the second rule when the builder is a subcontractor, or when the work starts more than a year after purchase.
  • Charging 5% on items that are always standard rated, such as fitted bedroom furniture or professional fees.
  • Collecting evidence after invoicing. If HMRC later rejects the evidence, the builder owes the difference; see correcting VAT errors. For holding costs while a property is empty, see empty property costs between lets.

HMRC’s internal guidance on this relief is at VCONST07000 in the VAT Construction Manual.

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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.