It’s a common situation: you find a potentially perfect home in a run-down property, wanting to transform it into the home of your dreams. Now, would it be better to demolish and rebuild, or to renovate and perhaps extend?
In recent years, the trend has been to demolish perfectly livable housing in order to replace it with a superior home. In coastal areas or other high value areas, this is particularly true. You’ll be paying twice over, for the existing structure and the structure you intend to build, so at first glance it doesn’t appear to be a wise choice. If you can end up with a property that’s worth more than all the costly outlay however, it can make sense.
If the existing property’s a wreck, then the decision to knock down is more tenable because you should have paid a lot less to acquire it. But before you make any decision, there are quite a few things to consider.
A good starting point is the period of the property. In terms of renovation, Victorian and Edwardian period properties are suitable as it’s possible to install underfloor situation and their roominess gives you a lot of scope for improvement. Other buildings, such as post-war bungalows, are excellent candidates for replacement as they don’t maximise value.
3-5 percent of the budget is typically put aside for demolition. And don’t expect to claw back any significant amount from recycling or reclaiming materials.
The different rates of VAT for renovations and rebuilds lend credence to the theory that demolishing and rebuilding is more profitable in certain instances compared with renovation. It’s best to employ a consultant to go over entitlements to avoid unnecessary taxation, as it’s a complex area. Due to the absence of VAT on new builds, it’s important to consider that a 20 percent tax on your renovation plans can impact your decision greatly. The VAT on building materials can be reclaimed under a DIY housebuilders scheme, according to HMRC. This works in practice by asking the builders to zero-rate their work. Under HMRC criteria, new-builds qualify as long as the previous structure has been demolished to ground level.
VAT relief can also apply to renovations, at a lesser rate. A reduced VAT rate for 5 percent may apply if, prior to work commencing, the property has been unoccupied for two years or more. Therefore, it may even be worth delaying the renovation work to meet that condition.
You may be able to further reclaim VAT if it has been empty for more than a decade under the aforementioned DIY scheme. Alterations to listed buildings and the conversion of non-residential properties to residential may also qualify for additional VAT relief. If you have paid VAT at the wrong rate you can’t retrospectively claim it under a DIY householder claim. As a result, the correct rate needs to be calculated before you submit your paperwork, retrospective action is not permitted.