New building or renovation: 21% or 6% VAT
A major renovation can for VAT purposes be considered as a new building. For a private person, this results in a cost price difference of 15%! Therefore, it is important to know how far you can go with the demolitions before rebuilding.
For renovations, a VAT rate of 6% may apply instead of the usual 21%. In order to apply this reduced rate some conditions have to be fulfilled, namely:
the building should be at least 10 years old;
the works consist out of 'transformation, renovation, rehabilitation, improvement, repair or maintenance'; and
the client is the end user.
For which works can you benefit from the reduced VAT rate?
For about everything which has to do with water pipes, sewage, central heating, stoves, ... Also for electricity and electrical installations, but do bear in mind that the installation should be attached to or in the building. A fixture can only be installed at 6% VAT when it is attached in the building. If not, it is 21%.
Additionally, also the isolation of the building, kitchen cabinets, bathroom cabinets, ... Build-in devices such as an oven, refrigerator, dish washer are always subject to the VAT rate of 21%.
In case of renovations to the exterior of the building, one can think of renovation of the façade, moss removal, jointing, placing blinds and roller shutters, a veranda, terrace, garage attached to the building. But garden landscaping, closures, installing a swimming pool, a terrace separate from the building, ... are excluded.
Normal 'domestic' cleaning of a building is also excluded. But cleaning the chimney, unblocking sewers and pipes and maintenance of elevators and central heating can fall under the reduced rate.
Attention: you can only obtain the reduced rate for works at your principal residence, not for your second residence.
When does renovation leads to a new building?
It can be tricky when you renovate an existing home. When do we speak about renovation and when does it become a new building?
The tax authorities will not have a problem with the qualification 'renovation' when the renovation works are done on the existing load-bearing walls (more in particular the exterior walls) or, in general, on the essential elements of the structure of the building which will be renovated. Also, when you transform the building by adding new rooms or by expanding (both interior and exterior), you can benefit from the 6% rate.
But when you demolish the building until just above the cellar and subsequently rebuild it, you cannot apply the 6% VAT rate, since the tax authorities and the courts consider this as a new building. The fact that the façade was rebuilt in the same style with the same stones could not convince the judge.
On the other hand, the tax authorities allowed the application of the reduced rate for a company which has acquired a commercial building (older than 30 years) and transformed two floors into two apartments. But adding a third floor for a third apartment was considered a new building.
Adding new parts to existing buildings is allowed, but ... A case where the new surface of a building was more than 50% of the surface calculated before the works, was qualified by the court as a new construction.
In case of the destruction of a building, the same rules apply. For a building which is totally burnt down and should be completely reconstructed, the 6% rate cannot be applied. It could be applied in case of partial destruction (if all other conditions are fulfilled).
You could conclude that demolition works are by definition excluded from the reduced rate, but this is not the case. If these demolition works are necessary for works which can benefit from the reduced VAT rate, the demolition works also qualify for the reduced rate.
The building permit revealed the intention
End 2011 a person applied for a building permit for the renovation of a building which has been on fire. The demolition works were simple: during a storm in January 2012 a part of a wall and the roof plummeted. In April 2012, he obtained the permit. Because of the instability, the wall was demolished up to the first row of bricks.
The tax authorities refused the application of the reduced rate because they considered this a new building and not a renovation. They referred to the building permit: the permit was granted 'to build a house and carport after demolition of the remains of an existing house'. The collapse of the wall was not relevant, since it was after all the intention from the start to build a new house.
The applicant is proved wrong: the building permit and the external advices clearly state 'building a house and carport after demolition of an existing house' and do not refer to renovation works. The applicant cannot prove that he only had the intention to renovate.
But the Court of Appeal in Ghent gives us an important lesson to learn: for the application of the correct VAT rate it is of no importance why the previous walls and roof have to be demolished and/or replaced. When a building is practically almost demolished, this is no longer a renovation, but a new building subject to 21% VAT.