The basic rule
HMRC VAT Notice 708 section 3.1 zero-rates the construction of a new dwelling[HMRC 708]. A replacement dwelling built after full demolition qualifies as a new dwelling. Pre-existing foundations or a single retained facade do not disqualify the project where retention is required by the planning authority and is no more than necessary.
Single facade retention
Notice 708 paragraph 3.2.1 permits retention of a single facade where required by a planning condition for design or conservation reasons. Retention of two or more walls, or retention by choice rather than planning requirement, breaks the zero-rating and the project becomes a renovation taxed at the standard 20% rate.
Contractor route vs DIY route
Under the contractor route, the homeowner issues a customer certificate (VAT Notice 708 Appendix B style) to the main contractor, who then invoices at 0% on labour and materials. Under the DIY route the homeowner pays VAT at the point of purchase on materials and reclaims via VAT431NB[VAT431NB]within 6 months of completion certificate. The contractor route is cleaner; DIY route is for self-managed builds.
Records to keep
Customer certificate copies, all VAT invoices, planning permission, completion certificate, supplier invoices in date order. HMRC has 4 years to query. Lose the invoices, lose the reclaim.