The 6% VAT rate already applied to the demolition and rebuilding of houses in 32 central cities. This new scheme for the whole country has its own conditions and will co-exist alongside the current scheme for the central cities. However, the new scheme does not apply to private builders-owners in the 32 central cities! They can only apply the existing arrangement for demolition and rebuilding. The refurbishment of homes older than 10 years has already been subject to a 6% VAT rate for some time. From now on, however, demolition and rebuilding can be carried out temporarily at the same rate.
The new scheme has been included in the draft programme law Budget 2021. The following is therefore subject to amendments, if any, to the final version of the law.
1. What exactly does the scheme entail?
The demolition and rebuilding of a private house can be done at the reduced VAT rate of 6%. Normally, the standard VAT rate of 21% applies to new-build houses, regardless of where the private home is located in Belgium.
The building that is being demolished does not have to be a private home, the new building does. So it is perfectly possible to demolish an old barn and then build a private house at the reduced rate.
The Explanatory Memorandum points out that the new scheme also applies to refurbishment works that do not qualify for the reduced rate for refurbishment because they constitute renovation work (because the alterations no longer rest on the old supporting walls and more generally on the essential elements of the existing structure).
2. Who can make use of the 6% scheme?
Contractors who invoice demolition and rebuilding work to natural persons and property developers who sell reconstructed buildings to natural persons can make use of the scheme. Property developers can also apply this arrangement in the 32 central cities (which is not the case for private builders-owners).
This is remarkable. For the first time, a new home can be sold at the 6% VAT rate. This was not possible under any previous regulation. Even under the existing scheme in the 32 central cities, it is not possible to sell a private home after demolition and rebuilding at the 6% rate.
This new arrangement may have a significant impact on the sale of the so-called accompanying land.
In practice, property developers often work with a separate land company that sells the land and a construction company that sells the building. That way, the land can be sold with registration fees (10%) instead of VAT (21%). For the private buyer, this means a considerable saving.
However, if the accompanying land is sold together with the new home by the same seller, the sale of the accompanying land follows the VAT rate of the sale of the home. This meant 21% VAT on the land. However, under the new scheme, this link becomes a major advantage. Indeed, the sale of the land can also be subject to the reduced VAT rate of 6%, which is more advantageous for the private buyer than registration fees of 10% or 7%.
3. Which houses fall under the new scheme?
- It must be a house that is used exclusively or mainly as the only owner-occupied home of the builder-owner/buyer. No account is taken of a home of which one becomes (co-)owner or usufructuary after an inheritance.
- The habitable floor area must not exceed 200 m². This limit applies to houses and flats.
- All these conditions must be fulfilled at least 5 years after the first occupation of the home.
- A declaration must be submitted, accompanied by certain documents, to the competent VAT office confirming that all the conditions have been fulfilled. The declaration must be submitted prior to the works and must also be handed over to the contractor/property developer.
4. How long will the temporary VAT reduction apply?
The new scheme will apply to transactions for which VAT becomes chargeable between 1 January 2021 and 31 December 2022.
For projects already started before 1 January 2021, the reduced VAT rate may also be applied to transactions invoiced after 1 January 2021. In this case, the declaration must be drawn up and submitted before 31 March 2021.
For projects of which the environmental permit is submitted after 1 July 2022, only 25% of the total amount may be subject to the reduced rate. This is to avoid a disproportionate amount of advance payments being invoiced for these projects in 2022 in order to benefit from the reduced rate. If, however, it can be proved that the amount invoiced before the end of 2022 corresponds to demolition and rebuilding work effectively carried out, the reduced rate can still be accepted.
5. Does the scheme apply if the new home is let?
No, the new scheme only applies if the builder-owner/buyer establishes his domicile in the new home without delay. It does not apply to houses that are let.
An important exception to this rule is social rental. The demolition and rebuilding of housing intended for letting as part of social housing policy can be done at the rate of 6%. This means that the builder-owner lets the house for a period of at least 15 years to a social rental agency or personally on the basis of a management mandate granted to him. This measure can be applied in the 32 central cities and will co-exist alongside the current scheme for demolition and rebuilding.
6. To which works does the reduced rate not apply?
The reduced VAT rate can only be applied to works relating to the actual home. For example, the construction of a conservatory, a garden house, laying out a garden, building a swimming pool or putting up a fence are always subject to the standard rate of 21%.
It pays to wait a while
The reduced VAT rate for the demolition and building of a private house is a welcome incentive for the construction industry. However, we are still awaiting a number of clarifications from the legislator and the actual entry into force of this new rule on 1 January 2021. Since this scheme is subject to a number of conditions, we recommend that you check carefully whether the reduced rate can be applied before you start demolishing.
Do you have any questions about this matter? Our VAT experts will be happy to help you. Do not hesitate to contact them.