The Self-Build Project can be one of the most rewarding experiences
of your life. No greater satisfaction can be made when you and your
family are living in a house in which you know you played a major
part in creating. If you are a person who is constantly attempting
home improvements then this may be the next big challenge for you.
Why
Self Build?
This
is a great opportunity to build the house of your dreams. If you are
a creative person this is a perfect chance for you to develop your
skills and be inspired. This can appeal to people who are good with
their hands (builders, carpenters, tradesmen, etc) or with their heads
(architects, planners, etc). If you are one of these people and have
the spare time and achieve sometime that is both rewarding financially
and intrinsically then read on.
Where
to start?
1.
Decide where you would like to live.
2.
Find a suitable building plot with planning permission for a dwelling.
3. Make a few sketches of your dream home and find a sympathetic
local architect.
4. Read some related material such as The Home Plans Book -a
collection of over 400 house plans. It will give some good ideas for
possibilities in design.
5. There is so much help and advice available from a number
of books and magazines dedicated to this subject. See the Housebuilders
Bible and Building Your Own Home for example.
6. Appoint an architect and ask the architect to give a written
estimate of his fees and the building costs.
7. Based on these estimates, you can raise the mortgage. One
of our specialist advisors will be happy to help.
8. It is always advisable to start the building work early
spring and make sure you have your roof in place by the autumn.
9. Lastly, if you are not adequately skilled or you lack the
time for all the details of design and quality, you may choose to
employ a Design and Build firm or choose one of the many Scandinavian
modular houses available. These are becoming quite popular in the
UK, as these houses are normally built to very high standards of thermal
insulation, with other energy saving features.
Other
key criteria includes:
- For many self
builders, the equity they have is tied up in their current house,
and selling this property may be all you need to do to give you
the lump sum needed to get you started.
- You may also
have savings of your own which can be used to partially-fund the
purchase of the plot.
- The lender
may ask for evidence of your ability to repay the mortgage. This
generally means that at least one of you will need to be receiving
a regular income from a full-time job.
- You will have
to draw up budget plans and have a timetable for the build in place.
- Some lenders
will also expect you to have detailed planning permission on the
plot, although an increasing number are willing to lend on land
with outline planning permission.
- Potential
lenders will also want to see detailed plans of the house that you
propose to build and will make their own independent valuation of
your plot of land.
- The amount
your lender will allow you to borrow will be tied to your annual
household income, just as it would be with a conventional house
purchase. This generally means that you can borrow three times your
income plus one times your partner's, or up to two and a half times
your combined income.
- The money
provided by the mortgage lenders on the whole will be provided in
three instalments. Before the project, during and near the end of
the project.
Who
Qualifies
- The house being
built must be for your main dwelling and must not be a flat or maisonette;
- You can have
the house built by a small building company provided it is being
built on your own plot of land;
- You can also
choose to build the house yourself in conjunction with other building
professionals, if you can demonstrate skills for quality control
and technical know how.
Warranties
& Insurance
It is vital that the construction of your house is backed by a warranty
or progress certificate from a professional who is monitoring the
building project. Structural warranties are issued by several organisations,
these include NHBC, which operates the Buildmark scheme for houses
built by a single NHBC-registered contractor, and Solo for self builders
who are prepared to tackle the organising and negotiating for themselves.
A structural warranty will give your new home 10, 12 or 15 years of
insurance cover against serious construction defects which may not
have been detected during the build. This is an excellent arrangement
for all parties - the lender and borrower both have protection for
their investment and the property can be sold on with a 'guarantee'
if you decide to move home during this period.
You will also need site insurance to cover you against theft and accidents
- this can be arranged through specialists such as DMS, FE Wright
and Buildstore.
The Fee's
The self-build
project has many pitfalls but is filled with numerous rewards. The
mounting cost of different people involved in the self-build project
needs to be highlighted. These include:
- Lender's survey/valuation
fee on their plot or renovation project - £300-400
- Further fees
for each of four or five interim inspections required before the
release of mortgage stage payments - £40-50 each time.
- If you have
to change lender to obtain a stage payment mortgage you may be liable
for redemption penalty charges.
- A site survey
by a surveyor - £300-500
- Bad ground
can mean that you will need a soil investigation and in turn that
can mean that an engineer will have to be involved in foundation
design - £1,000+
- Certain design
features will also necessitate the input of an engineer and calculations,
occasioning additional costs - £200
- Legal fees
will be required when buying the plot and selling your home - £1,000
- Stamp duty
is payable at 1% of the price over £60,000, rising
to 3% above £250,001 and 4% above £500,001.
- All land has
to be registered with the HM Registry - £40 for purchases
below £40,000, up to maximum of £800 for transactions
in excess of £1m.
Predictable
unexpected costs
1. Delivery
delays - This can cause additional labour costs from £100 and
above.
2. Planner's
expensive materials - In particular cases, your planner may require
more expensive materials than was first quoted. This can range from
£1,500 to £3,500.
3. Wastage
of materials - The tendency is to over order with a high wastage
factor inevitable. The costs of disposing the wastage may also occur
- £300+
4. Theft and
Vandalism - The costs of replacing any lost or stolen tools or
building materials should be covered by your site insurance policy,
as will the repairing of vandalised work. However, the cost of covering
of the excess should reach around £400+
5. Additional
Work Discovered in Progress - There is always the chance of unexpected
problems occurring when building. These costs can normally range from
£100-500
6. Extra Building
Costs Due To Amended Plans - Additional building work not itemised
in the original price is a common occurrence. This can lead to endless
disputes. The best way to control these extras is to make certain
every detail is finalised and described accurately within the plans
and specification. So it is a good idea to allow for extras within
your budget contingency of 10%. Costs from £1000+
7. Unsuspected
ground conditions - Despite having your plot surveyed it is possible
that certain areas were missed or out of the prospective building
site. This is a rare occurrence but it there something wrong with
the soil the cost could reach £1,000+
8. Additional
Architect's Fees - Make sure that you agree fees with your architect
in writing and ask for details of any additional costs such as printing
out set of plans, etc. Costs could be between £50-150
Other significant
costs:
-
Warranties
& Insurance - It makes sense to get enough insurance and cover
for your self build project. Total costs can range from £1,500
- 2,000.
-
Connection
Fees for Utilities and Services - With privatisation of these
service's it can be a difficult task to arrange all your immunities
for your home. The average cost for each service is - water £500-700,
gas £700, electricity £500-1,200, telephone £74.99.
-
Non-Recoverable
VAT on Building Materials
- There will be numerous items that can't be recovered after paying
VAT on them. Contact the Inland Revenue for an information sheet.
Could be £1000+
-
Accommodation
and Furniture Storage - Whilst you are building your self-build
this could prove quite a considerable cost. On average it could
be from £200+ per month.
-
Highways
Contractors, Sewage Connections and Creating Access
- The costs of a standard driveway, approx 5.5m wide and extending
back 14m from the carriageway with turning and parking space,
surfaced in gravel but with a tarmac section at the abutment to
the road, is around £4,000. If you require the whole driveway
to be surfaced that will be an additional £1,000.
-
Scaffolding
and Plant Hire - An average sized four-bedroom house will
need scaffolding for between twelve and sixteen weeks at a cost
for hire and erection of around £125 per week. That could cost
around £1,750-3000
-
Your own
time and expenses
- Perhaps the least obvious of all is that your own time is used.
Motoring costs, phone calls to mobiles, etc. All could be well
over £1,000.
How to save
1,000 of pounds in wasted VAT
Follow our twenty
simple tax tips and you could save £1,000s in unnecessary VAT payments
on your self-build project.
1 Consider
the use of an inclusive design & build package
VAT paid out on
professional fees e.g. an architect, is not eligible for relief unless
it is supplied as part of a design and build contract. Consider whether
such a contract might be more appropriate or, if you are using a package
deal company, get them to write off the costs of any professional
fees within the overall package. The cost of design or any other professional
services should not be identified and itemised as a cost on any invoices.
2 Get scaffolding
contractors to zero-rate their labour
Hire and erect
scaffolding contracts, as well as other things like crane hire agreements,
contain the two elements of supply and labour. VAT is payable on hire
charges at the standard rate. If a single invoice is paid for the
whole of their services, the total cost will be subject to VAT at
the standard rate. However, if the invoice is itemised, the labour
element is eligible for relief. On a conversion project, VAT will
be charged at the standard rate on the total invoice but the VAT on
the labour element, if itemised separately, can be reclaimed on completion.
3 Keep all
paperwork and receipts
If you do not
have proof of VAT paid, you cannot make a reclaim, so be sure to keep
all receipts carefully. Make sure that they are proper invoices and
receipts and not just delivery notes or pro-formas. VAT bills and
receipts should show a VAT registration number (usually nine digits,
sometimes shown with a GB prefix), what you have bought (not just
'goods'), the date of purchase, and normally a serial number except
for on small cash receipts. The bill must make it clear whether VAT
has been charged. VAT paid in error cannot be reclaimed under any
circumstances.
4 Plant to
an agreed scheme
Turf laid adjacent
to your home is eligible for relief, providing you lay it before completion
of the project. A recent VAT Tribunal ruling has held that planting
can also be given relief if a planting scheme is imposed as a Condition
by the planning authorities. The VAT paid on planting can be reclaimed
under Notice 719 but Customs & Excise might well require that you
demonstrate that the planting has been carried out in furtherance
of the Condition and that the local authority have confirmed that
the work is acceptable and in accordance with it.
What is zero-rating?
Most building
materials and services involved in the construction of a 'new dwelling'
are eligible for VAT relief. In the case of 'new build' most services
are free of VAT and any materials supplied and fixed by a VAT registered
contractor can be 'zero-rated' i.e. they will not charge you any tax.
Any materials which you purchase yourself which are 'eligible' for
zero-rating will be subject to VAT at the standard-rate (currently
17.5%) at the point of sale. However, you can reclaim the tax you
pay on completion of the project (See Customs & Excise Notice 719
VAT - refunds for 'do-it-yourself' builders and converters, available
from your local VAT office.) Conversions - unless sold as a completed
project in which instance the entire supply can be zero-rated - are
subject to VAT at the standard rate but tax on 'eligible' materials
and services can be reclaimed on completion under Notice 719.
5 Go for storage
that is part of the building 'fabric'
If you're thinking
of buying furniture for your new home, before you go rushing out to
buy wardrobes, consider having storage built in. Fitted furniture
is not eligible for VAT relief but storage, including wardrobes, are
eligible if designed into the fabric of the building, e.g. it encloses
a space bordered by the walls, ceiling and floor (the third wall can
be a stub wall). On opening the wardrobe, the painted wall must be
visible and there should be no more than a single shelf and a rail
for hanging clothes. You can of course adapt to suit once the building
is complete.
6 Go for 'free'
white goods with your kitchen
White goods such
as ovens, hobs, integral dishwashers and fridges are not eligible
for VAT relief even if they are permanently built in. However, offers
on kitchen units that include 'free' white goods can leave an unofficial
loophole in the collection system. Technically, the value of the white
goods should be itemised on the invoice and the VAT deducted from
any reclaim, as they are not really 'free', but this depends on the
value being detailed on the paperwork, so in theory you can save the
VAT.
7 Choose your
'built in' oven wisely
The VAT Notice
719 states that 'kitchen stoves' are eligible for VAT relief 'but
not gas and electric cookers unless they are plumbed in to provide
hot water'. An oil fired range cooker, like an Aga, is considered
to be a fixture and is, therefore, eligible. A gas or electric range,
however, is standard rated unless plumbed in to either the heating
or hot water system. In practise, many people reclaim the VAT on ranges
and range style cookers whether plumbed in or not, although there
is no guarantee that this will go unnoticed. Oddly, cooker hoods are
always eligible for VAT as part of a ventilation system.
8 Use non VAT
registered labour for renovations
VAT is normally
charged at the standard rate on all works to existing dwellings. However,
there are many local tradesmen who do not have to charge VAT on their
work because their annual turnover is below the £52,000 threshold.
This could result in a significant saving but caution must be taken
with regards to price and quality of workmanship. There is also a
black market in the construction industry where contractors - not
all of them cowboys - are prepared to work partly, or entirely, for
cash without charging any VAT on their labour. Although the contractors
are breaking the law by failing to collect VAT, it is not illegal
to employ them. Be aware, though, that payments made without paperwork
will restrict your chances of legal redress should things go wrong.
9 Recover any
VAT paid for purchases made in the EU
If VAT relief
is available on your project then it is recoverable at the rate paid
for any materials purchased within the EU. Most continental builders
merchants display prices inclusive of VAT and it is important that
you retain the invoice and that it states the rate at which the VAT
has been paid. You must also convert the invoice and VAT paid to sterling
at the exchange rate current at the time of acquisition, so note this
at the time.
10 Concentrate
on VAT recoverable materials
Prioritise your
expenditure on those building materials which are eligible for VAT
relief. VAT is standard rated at 17.5% on carpets and door bells but
alternatives such as ceramic, stone or timber flooring and door knockers
(a list is published in VAT Notice 708) are all eligible for relief.
Go for quality and luxury if you can, while you can - the VAT rules
do not distinguish between the finest bathroom suite and the economy
model. Utility room furniture and fitted kitchen furniture are eligible
for VAT relief.
11 Reclaim
VAT on renovating a derelict dwelling
Since July 21
1994 new dwellings created by the conversion of non residential buildings
have been eligible for VAT relief. Fewer people are aware that the
renovation/conversion of former dwellings is also eligible for relief,
providing the property has not been occupied since April 1st 1973.
In his pre budget statement, Gordon Brown trailed the possibility
that this rule will be extended in the April 2001 budget to include
any dwelling that has not been occupied for a period of at least ten
years. Those considering such a project might be well advised to delay
starting until this widely expected change comes into force.
12 Don't defer
zero-rated work such as hard landscaping
Make sure that
you undertake all qualifying work before the main dwelling is completed.
Labour and materials for hard landscaping for the driveway, main paths
to and from your new dwelling, retaining walls and patios are all
eligible for VAT relief, providing it is completed during the construction
of the dwelling - so don't leave this work until it is too late.
13 Consider
using the services of a VAT specialist
A specialist
VAT consultant or an accountant who specialises in the field of VAT
recovery will be able to handle your VAT reclaim on your behalf. More
often than not, their fees, of a few hundred pounds, will be more
than matched by the extra VAT saved or recovered. If you use a specialist
they might be able to argue the case with local officers more effectively
than you thus reclaiming additional VAT. If nothing else, it will
save you completing the forms yourself - a complicated and time consuming
process!
14 Use a VAT
registered builder for 'approved alterations' to listed buildings
VAT relief on
'approved alterations' to listed buildings is given by way of allowing
the builder to zero-rate their services and any materials they use.
You cannot claim relief on materials you buy yourself, whether for
DIY use or for use by others. For major alteration works, it is, therefore,
essential to ensure that the builder you employ is VAT registered
and to discuss the VAT implications with them - some builders refuse
to zero-rate work without express authorisation from the Customs &
Excise. The only alternative is to set up a firm and register for
VAT yourself.
15 Distinguish
between alterations & repairs to listed buildings
VAT on 'approved
alterations' to listed buildings can be zero-rated, whilst all other
works, including repairs and maintenance, are standard rated. 'Approved
alterations' are defined by HM Customs & Excise as 'major alterations
which affect the character and fabric of a protected building for
which listed building consent has been obtained'. Interpretation of
this definition, and, therefore, the extent of VAT relief, can be
stretched a long way by an experienced professional, potentially saving
£1,000s.
16 Reclaim
VAT on materials purchased outside the EU
If you import
materials from non EU countries for use in your building project,
you will have to pay VAT at the standard rate, currently 17.5%, at
the port of entry. This is recoverable under the normal Notice 719
scheme as long as you have proof of purchase together with proof that
the materials imported were used in your project.
17 Part Completed
Buildings/Small Claims
The completion
of a part finished property, e.g. one purchased after another self-builder
has given up, or after a developer has gone bankrupt, is also eligible
for VAT relief. It is also possible to make a claim under Notice 719
for any materials that you have purchased yourself, even if all of
the labour and the rest of the materials for your new home are being
supplied and zero-rated by a VAT registered contractor, including
a developer/housebuilder. Work on new dwellings to buildings which
have been sold as a shell, e.g. warehouse/loft apartments, are also
eligible for relief.
18 Join any
outbuildings to the main house
The only detached
building eligible for relief is a garage constructed or converted
at the same time as the new house. According to your circumstances,
you should aim to build or, in the case of conversions, join any other
outbuildings to the main house (subject to planning permission). Conservatories
are eligible, providing they are indicated in the planning permission
and built before completion. If you have any future plans for expansion,
see if the work can be brought forward by adding them to your existing
consent. Be aware that any breach of planning permission technically
forfeits VAT relief.
19 Consider
new build instead of renovation
In some cases,
where you are considering the extensive renovation of an existing
residential building, it may be more cost effective to demolish and
re-build from scratch. The work will then be eligible for VAT relief
as a new dwelling, potentially saving £1,000s.
20 Reclaim
VAT on conversions
On a conversion
project, although labour and most materials are eligible for VAT relief,
VAT registered builders have to charge the standard rate. It is then
up to you to claim VAT back on completion of the project under Notice
719. If you are using unregistered labour, they will not charge any
VAT on their services but in order to ensure you can reclaim VAT paid
on any materials they supply, ensure that they are invoiced to you
by the supplier, or are unnamed cash sale invoices. If the invoice
is in the contractor's name, a declaration from them that the materials
have been used on your project may suffice. However, this is at the
discretion of the VAT office.
Its simple. Just
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be in contact with you as soon as possible.
updated: 11/11/07
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