A common question we get asked by clients who are intending to transform a small and/or older property into a large family house is; “is it cheaper to demolish and rebuild as it would save 20% VAT?”. However, there are many other factors to consider, not least relative cost savings, design efficiency potential and sustainability.

VAT

You can reclaim on the materials used to build a new property and labour is zero rated but work on an existing structure attracts 20% VAT on both materials and labour.

Construction costs in UK range depending upon the location [London and the Southeast being the highest] and build specification quality. Below are some budget examples of a simplistic low or high cost/m²

These potential savings need offsetting against other “costs” some of which are difficult to transform into a tangible expense.

Planning policies

Energy efficiency could work in your favour when it comes to the planning application. Councils often have targets to hit when it comes to energy efficient homes. By replacing an old, inefficient home with a new, green one, your application could be exactly what they’re looking for.

In Planning Permission terms the criteria for a new house could be more onerous than an “extension” with bio-diversity net gain requirements. Developments that impact below 25m² of on-site habitat are exempt from the rules. Whilst ecology provisions are not necessarily disproportionate in costs in the grand scheme, they may be restrictive of the full intentions of the site usage.
The Community Infrastructure Levy charge may be applicable for new build at a cost of £200-300/m² of floor area unless the “occupier” exemption procedure is completed without missing the milestone dates.

Building Regulations

Under the Building Regs Approved Documents, new houses have higher requirements than extensions.

These are the main examples:

Low water efficiency appliances

AD G1 requires the estimated consumption of wholesome water by persons occupying the new-build dwelling is not greater than 125 litres/person/day of or in some cases where required by local planning policy, 110 litres/person/day

This requires fittings and appliances that save water including:

Low flow taps with aeration fittings
Low flow shower heads
Terminal fitting flow restrictors and flow regulators
Low volume flush WCs
Reduced volume bathtubs
Low water use washing machines and dishwashers
Water recycling systems

Sustainable energy

AD L1 stipulates that new build homes heating systems must not have a maximum flow temperature of more than 55°C, and the installation of Wastewater heat recovery systems for showers.

Sustainable electric heating systems and renewable energy sources (such as solar power and air and ground source heat pumps) are required with improved thermal efficiency etc. but there are no restrictions on extending an “existing system” in the case of an extension.

AD O limits the amount of new glazing a new build can have to reduce overheating by unwanted solar gain. It also stipulates new levels of cross-ventilation. So, for example, a typical 25m² lounge facing West would have a limit of 5.5m² of glazing e.g. a bi-fold door max 2.6m wide with no other windows.

AD S requires all domestic new builds to have an electric vehicle charging point

Door and window security

AD Q1 Secure doorsets & windows which are sufficiently robust and fitted with appropriate hardware to prevent access by opportunist burglars. This means any glazing needs to have Class P1A glass which means 6.8mm laminated [not toughened].

Insulation values

Although there is no difference between the insulation values required for walls in both new-build and extensions, for floors and roofs this represents a significant additional insulation thickness and therefore cost.

Whereas these measures do represent value for money, when costed they would off-set the VAT saving on the comparitive build cost for a large extension.

Design Efficiency Potential

There are advantages in a new-build design to enable flexibility in the design layout, without constraints of any existing construction remaining. This may enable a more satisfactory long-term solution for the benefit of the occupiers. Also, depending on how much of existing needs adapting or upgrading, it can be more cost effective to completely replace with modern materials and techniques.

Sustainability

Although not a cost implication, starting from scratch allows you to build a highly energy efficient home, whereas renovating an existing building could save a considerable amount of embodied carbon – the carbon generated by constructing it, including all materials and transport. It also reduces waste.

Mortgage Lender

Last but not least, mortgage lenders need to be informed if the property loaned against is to be demolished, and normally this is not allowed as in a default situation they have no asset to repossess.

The mortgage is secured against the value of the building you want to knock down!

What are the pros and cons of a substantial extension compared to demolition and rebuilding?

VAT