HomeOwners Alliance logo

Become a member today to access our home helpline, discounted conveyancing, expert advice & legal service

Cut VAT on extensions and repairs – our campaign to slash the cost of home improvements

Carrying out essential maintenance and repairs comes at a huge price to homeowners when you add VAT. The HomeOwners Alliance is campaigning to make home improvements more affordable for homeowners – by dramatically reducing VAT.

Cut VAT

HomeOwners Alliance findings 

A recent national survey by the HomeOwners Alliance, Resi architects and YouGov found that a third (31%) – approximately 5.3 million – of UK homeowners pay cash to avoid VAT to afford home improvements. Meanwhile, VAT costs are deterring almost a quarter (23%) – roughly 4 million – of homeowners from improving their homes.

The survey also found that 8 in 10 (79%) home owners have faced obstacles with their home improvement plans – levels are highest in London at 87%. Finding a reliable builder, getting planning permission as well as VAT costs are the top deterrents.

Why we need to cut VAT on home improvements

There are several reasons why cutting VAT makes sense.

  1. Adding VAT to home improvements means they are not affordable for many people. Our research shows VAT at 20% can make the difference between carrying out a home improvement and not. After spending thousands buying a home – a good chunk of which is paid in stamp duty tax to the Government – the Government then expect you to pay them an extra 20% when you improve it.
  2. It is vital we make our housing stock a good standard. Our recent report revealed that nearly two thirds (63%) – 32 million – of UK adults are worried about the quality of our housing stock and think our homes are “not fit for purpose”. Homes need to be fit to live in – secure, sound, energy-efficient and in a good state of repair.
  3. Homeowners can often be encouraged to pay cash and be left exposed without a receipt. Although it isn’t a crime to pay a builder in cash, homeowners are acting illegally if they know this is to avoid VAT. There is a huge risk of not getting a receipt for the work: they have no proof that a builder, carpenter or electrician has done the work – and therefore no guarantee that if things go wrong they will come back to put things right.
  4. Housebuilding companies do not pay any VAT when they build new homes and only a reduced rate of 5% for converting buildings into new dwellings. The government justifies this – and the HomeOwners Alliance supports it – on the grounds that we need to encourage housebuilding to overcome the housing shortage. We believe that building work done by homeowners that increases the living space of a home, for instance by converting the loft, should be treated the same as building a new home.
  5. Although homeowners are eligible to pay reduced VAT for some improvements (eg energy efficiency or necessary adaptions for someone with mobility issues) the way the system is administered is overly complicated and confusing. This results in people not claiming their rightful reductions. For example, homeowners can pay 5% VAT on installing controls for heating systems and insulation, but not for installing the system itself (unless you are over 60 or on a low income). The scheme is so complicated that we hear of many builders not offering it to their customers because they fear they will be liable for the tax if they get it wrong.
  6. Cutting VAT on home improvements to 5% could give at least a £15 billion boost to our economy, creating thousands of jobs, according to the Federation of Master Builders. This would boost the demand for renovations, which would benefit the construction industry.

Have you been put off building an extension or converting an attic because of VAT? If so we would like to hear from you.

Alex Depledge, CEO of Resi.co.uk, says: ‘Buying a home is the largest purchase most people will make and renovations are often their second largest lifetime spend. And if you’re spending £100,000, which is an extraordinary amount of money to save up – or take out on top of your mortgage – and then have VAT slapped on top of it, it can become impossible.’

‘But VAT on building work doesn’t just affect consumers. Builders are also affected. For smaller operations, working below the VAT threshold, it can become extremely difficult not to succumb to the temptation to take some aspects of a project off the books.’

The homeowners point of view

Alice Barlow*, 64, a landlady, lives with her husband near Warwick. The owner of several properties, she has been asked to pay cash-in-hand many times for renovation work and says the problem has worsened recently.

She says: ‘We own several properties, so I’m fairly used to getting quotes for building work. But I’m currently doing up a house in Devon and have been genuinely shocked by how widespread the black market for building work has become. Virtually every one of the tradesmen and craftsmen we have used on the project has hinted – or said outright – that they would like to be paid in cash. The builders we met didn’t specifically say it was to avoid VAT, but of course this would be the result if we had agreed, because they are a big enough firm to require charging VAT on projects.

‘But we wouldn’t dream of paying cash for large projects. It would be hard to avoid the impression of money laundering or something else fishy if we kept withdrawing fistfuls of £50 notes. My father was a Lloyd’s Bank manager and I’ve been extremely law abiding all my life.

‘If I’m paying a local gardener to do a bit of mowing, I don’t mind paying them £20 in cash because they are almost certainly operating below the VAT threshold. That simply isn’t the case with many of these larger companies, who might ask you to pay in instalments of cash. I think the problem has got worse recently because there’s been such an influx of builders into the market and so many people are feeling the pinch. As a property owner, I can see an increasing sense of desperation fuelling this black market. And, of course, many homeowners are only too happy to oblige.’

*Not her real name

Cut the VAT Campaign

We joined the Federation of Master Builder’s Cut the VAT campaign in 2012, alongside dozens of other organisations who wrote to the Chancellor on this issue.

We also wrote to the planning minister at the time, Nick Boles, to respond to the government’s consultation on permitted development rights and the issue of cutting VAT on extensions. We later produced a press notice and urged people to email their MP.

Related reads


Leave a comment




* required

14 Comments

  1. Under the current rules, (self-)builders are unable to make a logical choice between demolish-and-build-anew or extend. We are planning a home extension and it would cost about the same to knock down the existing house and rebuild anew as the new build would be zero-rated for VAT. The existing house is in good condition, if draughty, but retrofitting it would be rated at 20% VAT and so would the extension, making the costs similar.

    Personally, we cannot demolish and build as we have a mortgage and our bank will not allow us to demolish their asset. So IF we were richer (and mortgage free), we would still spend about the same but have a shiny new, more energy-efficient, higher-value house at the end of it. The current rules only make the very rich even better off!

    Comment by Ragul — July 18, 2018 @ 12:27 pm

  2. I cant believe I am forced to give the government £15000 in VAT for no return. They are unaccountable to the people of the UK and incompetent in so many ways.
    This is unjust and wrong, I agree with all of the comments above, when will the government listen to sense??

    Comment by jonathan maberry — April 27, 2018 @ 4:33 pm

  3. My parents are 83 and are becoming increasingly frail and vulnerable. They are entirely dependent on their state pension without the resources to afford any help and they live too far away for me to provide assistance. They currently live in a three-bedroomed home which they are finding increasingly difficult to manage.
    We would like to be able to build an extension to our home to provide them with an independent apartment with entirely self-contained accommodation connected to us by an internal door. We have been advised, via the local pre-planning facility, that our proposals would likely receive approval as the annexe would not constitute a separate dwelling and that its independent use would be specifically precluded by the imposition of a condition to any planning approval.
    We are dismayed to discover that for building work to be zero-rated for VAT, it must qualify as a new, self-contained house or flat.
    VAT Notice 708: buildings and construction section 3.2.2 specifically uses such a project as an example to illustrate liability
    “3.2.2 Examples of when a qualifying building is not constructed
    Common examples of work you cannot zero-rate include the construction of:
    • a ‘granny’ annexe which cannot be used, or disposed of, separately from a main house. This is because the conditions of ‘a building designed as a dwelling’ have not been met in full – see paragraph 14.2”

    As the work that we propose would constitute an extension to our home and not a separate dwelling, it would be liable for the full rate of VAT at 20%. Unfortunately the high burden of VAT makes our project unaffordable and we cannot proceed.
    We are constantly being informed, by both the press and the government, of the inadequate, unaffordable provision of elderly care and support and of the ever increasing burden of such on the social care budget. We are also reminded regularly of the shortage of homes and, in the last autumn statement, of the billions of pounds the government proposes to make available to help address the situation.
    Our proposal would have provided secure, decent accommodation for our elderly parents designed to ensure their continued independence for as long as possible and likely removing or at least reducing the future burden of their care provision on the social care budget whilst at the same time releasing a family home back into the available housing stock.
    We urgently need a review of the VAT rules for families wishing to build annexes to provide accommodation for their elderly relatives. I imagine the lost revenue would be small but the social benefits would be enormous.
    I have written to the Secretary of State for Health and Social Care, the Chancellor of the Exchequer and to my MP about this. Not a single one of them has bothered to reply.

    Comment by Pamela Wright — April 23, 2018 @ 11:21 pm

  4. This isn’t just about extensions. I had to have my drains relined as the pitch pipe installed about 50 years ago is just not fit for purpose. (Many Victorian drains are still working satisfactory) This cost a considerable amount and of course the government took their share as VAT. I have nothing to show for it
    A pensioner.

    Comment by Peter Seymour — November 21, 2017 @ 4:22 pm

  5. We have recently bought, and after some minor diy improvements, moved into a very small house, with the intention of adding an extension in the future to take it up to modern living standards an expectations. We have had some plans drawn up and have had some initial building costs from contractors, which have ruined our aspirations.
    They pointed out to us that due to the house not being lived in for over two years before we moved in, it could have qualified for 5% VAT, but because we were now living in it the work had to be 20%. And that if we demolish the existing house and build a new one it’s 0%VAT.
    This is absolutely crazy and only benefits the wealthy who can purchase land to build new houses, and those who can afford to leave houses empty for two years. No wonder the rural communities are fading away because all the existing housing stock are being bought up and left uninhabited for two years by those who are privileged.

    Comment by Annoyed — July 30, 2017 @ 9:19 am

  6. Absolutely absurd VAT rules on extensions.

    I was considering a large extension to our lovely existing house in the countryside. The 6 figure VAT bill, however, has now led to us deciding to demolish the existing house so the project qualifies as a new build. I’ll say that our loud – the VAT rules are so absurd we are bulldozing a perfectly good house to avoid paying £100,000 in VAT. Crazy!

    Comment by Phil — July 20, 2017 @ 10:05 pm

  7. I currently live in 3 bed house that we wish to extend, just a single storey extension at the rear for a larger living space. The VAT alone for this extension works out at £8000. This extra tax is preventing the us employing a reputable builder to complete the works. We’ve had a one or two builders mention cash in hand, which isn’t the way we’d like to do things on such a large job. This tax is no doubt forcing people to employ potentially unqualified builders, with no garuntees on work and in turn no tax is paid at all. Reputable builders are losing work, families are losing out on needed living space and also the government losing Tax revenue. So it doesn’t seem like 20% tax benefits anyone.

    Comment by Steve — December 30, 2016 @ 1:01 pm

  8. Dear Tony,

    Thanks for your comments and we agree that VAT is a huge additional cost for homeowners who are carrying out home improvements! Please keep an eye on our news section: HOA’s Voice for details of any press notice or campaigns we start on this or other issues relevant to homeowners.

    Kind regards,

    Sophie
    HomeOwners Alliance Team

    Comment by Sophie Khan — September 22, 2016 @ 12:36 pm

  9. we live in a 3 bed semi and have become legal guardians for 2 of our grand children we need to extend. we still have 2 younger daughters living with us.
    the cost of extending is approximately 30,000,
    with additional costs for our grandchildren money is at a premium as we are approaching pensionable age. the vat on building work is a major concern.
    i feel an unfair tax.as we do not claim anything for the grandchildren from this government. they should be helping people in this matter and reduce the vat as the same for newly built property.

    Comment by tony gregory — September 3, 2016 @ 8:46 pm

  10. I am confident that VAT reduction on extensions / renovations will boost the economy / employment in the country without loss of revenue to the chancellor.
    More and more jobs will be directed towards established / registered companies rather than builders working for cash, significant non-registered builders avoid income tax probably claiming state benefits.
    My current extension project (a fairly common example) can be completed either £22000 or £26400. What a Choice I have! Educated assessment is that the total material cost for this project is under £5000, rest is wages and profit.
    This business requires serious considerations; need to establish process / procedures.
    May be chancellor and his team do not time for this important and popular demand in our country.

    Comment by Rasool Hashmi — April 20, 2016 @ 10:24 am

  11. At least an extension will ultimately increase the house value. But why should VAT be charged for “invisible” but important renovation work such as new joists, rewiring, etc. Surely this is contributing to Britain’s housing stock.

    Comment by M. Jones — March 15, 2016 @ 9:01 pm

  12. we are currently looking to build a single floor extension on our terraced house but the cost of the Vat is putting it beyond our means. we can not afford to move house so are stuck with our small house

    Comment by kate — August 7, 2015 @ 12:21 pm

  13. 20% VAT for extending a house to a modern family home, when there is such a shortage of housing and housing prices are so high is very unfair. We are intend to renovate farm cottages, but for the price of the renovation we can almost buy a new home, with land.

    When you look at the QS figures for the house, and cannot understand why it will cost so much and is such an inefficient choice – the answer is in the 20% tax.

    The tax damages the financial advantage for families to improve the housing stock, and shuts another door to those seeking a solution to family living space in such an inflated market. It’s a nonsense when developers of new builds do not pay the tax at all.

    Comment by Dr Ben Ward — June 21, 2015 @ 9:03 am

  14. I am a single parent who works for peanuts after tax and national insurance is taken out. I am appalled that I have to pay VAT on an extension I want to build. It is a small single storey extension and the VAT is preventing me on having the work done. The £4500 tax charged for VAT on the quote means I would not be able to afford a kitchen to go into the extension. Its a shame because the sacrifices my daughters and I have made to save money to extend the kitchen has all been in vain. The savings I have already been taxed, so to tax them again is ludicrous.

    Comment by Nasim Yousaf — June 28, 2014 @ 6:33 pm

Sign up to our FREE newsletter for latest advice, services and money saving offers

Sign up now

×

Don't Miss Out!


Sign up to our free newsletter for latest advice, services and money saving offers

Sign Up Image