Do You Pay VAT on a New Build in London?

VAT on construction is one of those topics that sounds simple and turns out to be anything but. The short answer is that building a new home is zero-rated for VAT, which means you should not be paying 20% on the labour and materials that go into it. But zero-rated is not the same as no VAT at all, and the rules around what qualifies, what does not, and how self-builders can reclaim what they have paid are worth understanding properly before your project starts.

Getting this wrong costs real money. On a £500,000 new build, 20% VAT on eligible costs is a six-figure sum. That is not a rounding error.

This guide explains how VAT works on a new build in plain terms. It covers what zero-rating means, what is and is not included, the DIY Housebuilder scheme for self-builders, and where the rules catch people out. For context on overall build costs, our guide to how much it costs to build a house in London has the full picture.

The Basics: Zero-Rated Does Not Mean No VAT

There are three ways VAT can apply to construction work in the UK: standard rate (20%), reduced rate (5%), and zero rate (0%). New build residential construction falls into the zero-rated category, but it is important to understand what that actually means.

Zero-rated is not the same as VAT-exempt. A zero-rated supply is still a VAT supply. It is just charged at 0%. The practical difference is that VAT-registered contractors can still reclaim the VAT they pay on their own materials and costs, which they cannot do on exempt supplies. This is what allows the zero rate to work properly through the construction supply chain.

For you as the homeowner commissioning a new build, the headline benefit is straightforward: your contractor should not be charging you 20% VAT on their services or on materials they supply and incorporate into the building. If they are, something is wrong. Either they are applying the wrong VAT treatment or the work does not qualify as a zero-rated new build, and you need to find out which.

When Does Zero-Rating Apply?

Zero-rating applies to the construction of a new dwelling, but HMRC has specific conditions that need to be met. The building must:

Be designed as a dwelling, meaning it has self-contained living accommodation with its own entrance, kitchen, bathroom, and sleeping facilities.
Not have any legal restriction on its separate use or disposal. If planning permission restricts occupation to someone employed in agriculture, for example, the zero rate may not apply.
Not involve the conversion, reconstruction, or alteration of an existing building. This is the most important condition for London projects. If there is a standing building on the site, even a derelict one, the VAT treatment may be different depending on what happens to it.

That last point catches people out regularly. If you demolish a house and build a new one in its place, the new build can still qualify for zero-rating. But if you retain any part of an existing building and build around it, or if walls or a facade are kept as part of the new structure, HMRC may treat it as an alteration or conversion rather than a new build. The VAT treatment then changes to either 5% or 20% depending on the specifics.

The official guidance is in HMRC VAT Notice 708: Buildings and Construction. It is detailed and technical, but it is the definitive reference if there is any doubt about whether a project qualifies.

If your project involves retaining any part of an existing structure, get VAT advice before work starts, not after. Changing the VAT treatment partway through a project is complicated and expensive.

What Is Zero-Rated and What Is Not?

Zero-rating covers the main contractor’s labour and the materials they supply and incorporate into the building. But not everything connected to a new build is automatically zero-rated.

Item	VAT Treatment	Notes
Main contractor labour on a new dwelling	Zero-rated (0%)	Applies to VAT-registered contractors building a qualifying new home
Materials supplied and installed by the main contractor	Zero-rated (0%)	Covers materials that are incorporated into the building fabric
Architect fees	Standard-rated (20%)	Professional services are not zero-rated even on a new build
Structural engineer fees	Standard-rated (20%)	Same applies to all professional consultancy fees
Quantity surveyor fees	Standard-rated (20%)	Professional fees always standard-rated
Planning fees	Not VAT-able	Council planning fees do not carry VAT
Furniture and freestanding appliances	Standard-rated (20%)	Items not incorporated into the building structure
Fitted kitchens and bathrooms	Zero-rated (0%)	Where installed by the contractor as part of the build
Carpets and floor coverings	Standard-rated (20%)	Not considered to be incorporated into the building
Garages built at the same time as the house	Zero-rated (0%)	Only if built simultaneously and intended for use with the dwelling
Landscaping and garden works	Standard-rated (20%)	Not part of the dwelling construction
Solar panels and heat pumps installed during build	Zero-rated until March 2027, then standard treatment applies	Temporary zero-rate on energy-saving materials currently in force

The distinction between what is incorporated into the building and what is not is where most disputes arise. A fitted kitchen is incorporated. A freestanding fridge freezer is not. A built-in wardrobe is incorporated. A carpet laid on top of a floor is not. When in doubt, the test is whether the item becomes part of the fabric of the building or whether it can be removed without affecting the structure.

What About Subcontractors?

The zero rate applies to work done directly for the person who will own or occupy the new home, or for the developer who is building it. It does not automatically flow down to subcontractors in the same way.

When a main contractor engages subcontractors to carry out work on a new build, those subcontractors generally charge the main contractor at the standard rate of 20%. The main contractor then zero-rates their supply to the end client. This is how the VAT works through the supply chain, and it is also why the Domestic Reverse Charge applies to many construction subcontractor invoices.

The Domestic Reverse Charge is a VAT rule that changes who accounts for VAT on construction services between VAT-registered businesses in the supply chain. If you are a developer or contractor managing subcontractors, you need to understand how this works. The HMRC guidance on the Domestic Reverse Charge covers it in detail.

For a homeowner commissioning a new build directly from a main contractor, this does not change what you pay. Your contractor handles the VAT accounting within their supply chain. You simply should not see a 20% VAT charge on a compliant new build invoice from your main contractor.

The DIY Housebuilder Scheme: Reclaiming VAT if You Are Self-Building

If you are managing your own build and buying materials directly rather than through a main contractor, you will be paying 20% VAT at the merchant or supplier and then reclaiming it afterwards through HMRC’s DIY Housebuilder Scheme.

This scheme exists because self-builders buying their own materials would otherwise be at a disadvantage compared to people buying from a developer, where the sale is zero-rated. The scheme levels the playing field by letting you recover the VAT you have paid.

How the scheme works

You pay VAT on materials as you buy them throughout the build. Once the project is finished and you have your completion certificate from building control, you submit a one-off claim to HMRC using form VAT431NB for new builds, or VAT431C if you are converting a non-residential building into a home. HMRC processes the claim and pays the approved amount directly to your bank account, typically within 30 working days.

What you can reclaim

You can reclaim VAT on building materials that are incorporated into the structure of the home. The practical test is the same as for zero-rating generally: does the item become part of the building fabric?

Bricks, blocks, timber, insulation, roof tiles, windows, doors: yes.
Plumbing and heating materials, electrical cables and fittings: yes.
Kitchen units, bathroom sanitaryware, fitted wardrobes: yes.
Carpets, curtains, furniture, white goods: no.
Professional fees (architect, engineer, surveyor): no.
Tool hire and plant hire: no.
Electrical blinds and broadband installation: no. HMRC confirmed this specifically in recent updated guidance.

The deadline

You have six months from the date on your completion certificate to submit your claim. This deadline was extended from three months in December 2023, so if you have seen older guides quoting a three-month window, the current rule is six months.

This is a one-time claim. You cannot submit partial claims during the build or resubmit if you miss the deadline. Miss the six-month window and you lose the reclaim entirely. Around 25 to 30% of claims are rejected in part on first review, usually for missing invoices or ineligible items. Get everything in order before you submit.

What you need to submit

The completed VAT431NB form, submitted online through HMRC’s digital service or by post.
A copy of your planning permission showing the property is a new dwelling.
Your completion certificate from building control.
All VAT invoices for qualifying materials. Each invoice must show a valid VAT registration number and the VAT amount separately.
Invoices must be in your name, not your contractor’s name.

Keep every VAT invoice from the day work starts, filed in date order with the VAT amount highlighted. Reconstructing invoice records at the end of a build is time-consuming and you will almost certainly lose some. The effort upfront saves significant stress later.

How Much VAT Can You Realistically Reclaim?

It depends on how much you are buying directly versus what your contractor supplies. On a typical London new build where a main contractor supplies most materials, the contractor handles the VAT themselves and you do not see it at all. The zero rate passes through invisibly.

Where self-builders are buying materials directly, reclaims can be substantial. On a £250,000 to £400,000 new build in London where the self-builder is sourcing materials independently, reclaims of £10,000 to £30,000 are not unusual. The exact figure depends on what qualifies, how carefully records have been kept, and whether professional fees (which do not qualify) make up a large proportion of the spend.

The one area where VAT always bites regardless of route is professional fees. Architects, structural engineers, planning consultants, quantity surveyors, and project managers all charge 20% VAT on their services. On a complex London new build where professional fees might run to £50,000 or more, that is a £10,000 VAT cost that cannot be recovered. It is a real cost of the project and needs to be in the budget.

VAT on New Builds vs. Renovations: Why It Matters

One of the most significant financial advantages of building new rather than renovating is the VAT treatment. Understanding the comparison is important for anyone weighing up the two options.

Work Type	VAT Rate on Labour	VAT Rate on Materials
New build residential	Zero-rated (0%)	Zero-rated when supplied and installed by contractor
Renovation of existing home	Standard-rated (20%)	Standard-rated (20%)
Conversion of non-residential to residential	Reduced rate (5%)	Standard-rated (20%) if bought separately
Empty home renovation (unoccupied 2 or more years)	Reduced rate (5%)	Standard-rated (20%) if bought separately

The difference between paying 0% and 20% on labour is significant on any substantial project. On a £400,000 construction contract, that is an £80,000 difference. This is one of the genuine financial advantages of new build over renovation that gets less attention than it deserves. Our guide to new build vs renovation in London looks at the full comparison including costs, planning, and timelines.

Planning a New Build in London?

We build across all 33 London boroughs and manage the full process from groundworks to completion. If you want to understand exactly what your project will cost and how VAT applies to your specific situation, get in touch with our team. We will give you a straight answer.

Note: This guide covers the general VAT rules for new build construction in England as of July 2026. VAT rules can change and individual circumstances vary. For advice specific to your project, speak to a VAT specialist or qualified accountant.

DEVELOPER NOTES

Internal links: /blog/cost-to-build-a-house-london-2026, /blog/new-build-vs-renovation-london, /contact

External links: HMRC VAT Notice 708 (gov.uk), HMRC DIY Housebuilder scheme and VAT431NB form (gov.uk), HMRC Domestic Reverse Charge guidance (gov.uk)

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Frequently Asked Questions

Do I pay VAT when I buy a new build house?

No. The sale of a new residential property is zero-rated for VAT. If you are buying a completed new home from a developer, you will not pay VAT on the purchase price. The developer handles the VAT treatment within their build costs. Stamp Duty Land Tax applies in the normal way, but VAT does not.

Does my builder charge VAT on a new build?

A VAT-registered contractor building a qualifying new residential dwelling should charge you 0% VAT on their labour and on materials they supply and incorporate into the building. If your builder is charging you 20% VAT on a new build contract, either the work does not qualify as a zero-rated new build or they are applying the wrong VAT treatment. Either way it is worth getting clarity before you pay.

Can I reclaim VAT if I am self-building?

Yes, through HMRC’s DIY Housebuilder Scheme. If you are buying materials directly rather than through a main contractor, you will pay 20% VAT at the point of purchase and then reclaim it after the build is complete using form VAT431NB. You have six months from the date of your completion certificate to submit the claim. Keep all VAT invoices throughout the build in your name, as you cannot resubmit if your claim is rejected and the deadline has passed. The official claim form and guidance are on gov.uk.

Are architect and engineer fees zero-rated on a new build?

No. Professional services such as architect, structural engineer, quantity surveyor, and project manager fees are always standard-rated at 20%, even on a zero-rated new build project. Only the construction labour and qualifying materials are zero-rated. This is a fixed cost of every new build that cannot be recovered and needs to be in your budget from the start.

What is the difference between zero-rated and VAT-exempt?

Zero-rated means VAT is charged at 0%, but the supply is still a VAT supply. This is important because it means VAT-registered contractors can still reclaim the VAT they pay on their own costs, which keeps prices low through the supply chain. VAT-exempt means no VAT at all, but exempt suppliers cannot reclaim their input VAT, which can actually make things more expensive. New build construction is zero-rated, not exempt, which is the better outcome for everyone involved.

Is renovation work also zero-rated?

No. Renovation and repair work on existing residential properties is standard-rated at 20%. This is one of the meaningful financial advantages of building new over renovating. On a substantial construction contract, the difference between 0% and 20% VAT on labour is a significant sum. There is a reduced rate of 5% that applies to some renovation work, including conversions of non-residential buildings and renovations of properties that have been empty for two or more years, but standard renovations are charged at the full 20%.

What happens if my project retains part of an existing building?

The VAT treatment can change if an existing building is partially retained. Demolishing a house entirely and building a new one in its place can still qualify for zero-rating. But if walls, a facade, or any significant part of an existing structure is retained and incorporated into the new build, HMRC may treat the project as a conversion or alteration rather than a new build, which changes the VAT rate to 5% or 20%. This is a common issue on London plots where planning requires facade retention. Get VAT advice specific to your project before work starts.