I had a buy-to-let house, which remained empty whilst I obtained planning approval for demolition and then a rebuild into two self-contained flats. I was proposing to rent it out on completion. Does this qualify for zero-rated VAT or a reduced rate of 5%? Also, the builder was not VAT registered when signing the contract but now has registered for VAT. How does this affect the situation? What needs to be prepared for compliance? 

Arthur Weller replies:  

I presume that you are going to demolish the present house to ground level, so no conversion is taking place here - it is simply a case of building two new residential dwellings. If so, VAT Notice 708 section 3 states that the builder can zero rate his supply (see here). It will not make a difference that he became VAT registered in the middle. You need to be able to show that you complied with the conditions there.