Guide To Property Renovation

Here is a short guide to what you may need to consider when undertaking property renovation. We have provided references and sources where applicable. Please note that anything non-insurance related within this guide should not be taken as legal advice (such as matters relating to VAT for example) but purely as our understanding of current legislation, which may be liable to change.

Why renovate?

At some stage in its life, practically any building may benefit from property renovation and the reasons for doing so might include some of the following:

if the property has been left empty and practically abandoned, renovation may be a way of breathing completely new life into it, returning it to the usable housing stock for the present and future generations;
renovation might be the route to transforming an acceptable building into the home you always dreamed of;
turning a property into a home through careful renovation may be a way of giving full reign to your creative energy and flair – putting your very own personal stamp on what might otherwise be just another building;
renovation gives you an alternative to the even bigger upheaval of selling your existing home, tracking down and negotiating the purchase of a new one – and a new one at that which might still need some alterations before it looks how you want it to;
renovation may prove a more economical option than moving home;
if you have some building or other skills of your own, your labour may help to reduce the costs of contracting builders and other tradesmen;
whether the end result is intended for use as your own home as an owner occupier or for letting to tenants, renovation may produce the property most fit for purpose;
if you are a landlord, renovated premises are more likely to command a higher rental value;
carefully planned renovations may substantially increase the market value of your property;
if your property is in a previously run down area, renovation might help to lift not only the appearance and desirability of your own home, but also of others in the same street;
when deciding to renovate, you remain in complete control by determining whether the works are minor or major and the quality of workmanship that goes into the project;
it may be argued that the renovation of existing property represents a more sustainable approach to the country’s housing needs, since no new ground needs to be broken and much of the material that has been used to provide the original building continues to be used.

This may appear a fairly long list of benefits you might derive from property renovation. But it is by no means exhaustive and you might just as easily come up with your own very good reasons for taking the plunge and embarking on a renovation project.

Considerations

You may have reached the decision that the property you already own – or have just bought – is suitably ripe for renovation. But the decision-making and planning does not stop there. On the contrary, it is likely to be just the beginning.

What are some of the principal considerations to be taken into account as you aim to progress from the drawing board to renovation project completion?

Research

Imagination and flair may be fine components of the creative process, but just as important is likely to be some research of the cold hard facts.

Your ideas for renovation are not empty flights of fancy but need to be tempered by what is going to be realistically possible – and affordable. To help you keep things in perspective, therefore, it might be helpful to take a look at what others have done to remodel their homes, either by paying them visits, looking through magazines and catalogues or browsing online.

Included in your preliminary research might also be those aspects of the work for which you need formal approval or certification – to conform with planning requirements, building regulations or, for example, the safety and security of gas and electrical installations. A little forethought to any permissions that might be necessary may save you greater disappointment later in the project.

One of the tips on the property website Designs on Property is to give advance thought to and careful selection of the materials with which you plan to make the renovations. It may also be worth considering items for possible future use such as insulation, plumbing and wiring which might be easy to install when building works are in progress, but are likely to be considerably more work – and expensive – if added later.

Planning

This last point also points up the need for careful planning of the way your renovations need to proceed. You may need to unravel your way from the end point and back to the beginning to determine in what order the various tradesmen need to do their work – does glazing come after or before the plasterer or electrician have done their bit, for example.

Some of the timings of the various stages may be determined by the delay between ordering and delivery or the time it takes some of the building processes to set or to cure.

However carefully you may have planned, the unexpected may still happen – late deliveries, failure of scheduled tradesmen to appear or a spell of bad weather, for example. So that your plans are not completely turned on their head, it may help if you have already built in some of these contingencies into your plan.

Budget

Allied to careful planning and likely to be every bit as critical is your budget for the renovations. Although you may have taken pains to price everything carefully, building projects have a notorious tendency for going over budget.

You might be able to counter this by making adequate provision for contingencies – such as increases in the costs of materials and labour – but you are likely to find that costs have an almost inexorable tendency to climb. You may have your work cut out in keeping them under control, but this may be essential if the works are to reach completion.

Reduced VAT implications

When preparing your budget, you need to take into account the VAT you are liable to pay not only on materials but also on the labour you hire. This is charged at HM Revenue & Customs (HMRC) standard rate of 20% (as at July 2016).

If you are renovating a home that has previously stood empty or are converting a property that was previously in commercial use, however, there are particular government incentives through which you may qualify for a reduction in VAT to 5% or even enjoy a zero rating on VAT for the materials you use and the contractors you employ.

The reasoning behind the incentive, of course, is designed to be an encouragement for property owners to bring otherwise empty or underused buildings back into the usable housing stock.

Details of the reduced VAT incentives are described in detail on HM Customs & Revenue website.

Qualification for reduced rates of VAT depends on the type of property on which you are working and the nature of the intended renovations. As with many matters related to VAT the precise rules may become quite complicated, so it is imperative that you, your suppliers and your contractors obtain a statement from HMRC about reduced rates of VAT well in advance of your starting work.

Work that is included under this reduced rate VAT scheme covers:

the conversion or renovation of a house or flat that has been empty for the previous two years – VAT is reduced to 5%;
the conversion of any building into a house or flat – VAT is reduced to 5%;
installation of energy saving materials and equipment – VAT is reduced to 5%;
installation of mobility aids for the elderly – VAT is reduced to 5%;
installation of grant-funded heating systems – VAT is reduced to 5%;
the conversion of a home into a different class of residential use – renovations that result in the creation of two or more self-contained flats from a single residence, for example – VAT is reduced to 5%;
construction of a new flat or house – VAT is zero-rated;
the conversion or renovation of a house or flat that has been empty for the previous ten years – VAT is zero-rated;
renovations intended to make a dwelling suitable for use by a disabled person – VAT is zero-rated.

As you might imagine, a reduction of VAT from 20% to 5%, not to mention VAT being zero-rated, may make a big difference to your budget for the proposed renovations.

Not all of your suppliers or contractors may be aware of these allowances on VAT so it may be important to agree them with HMRC and inform suppliers and contractors of your entitlement before invoices are issued and paid – since it is considerably easier to make the correct VAT deduction at the outset rather than trying to claim a refund after the event.

Insurance

Any work on your property may increase the risks to which its structure and fabric is exposed. The more extensive or major your proposed renovations, the greater are likely to be the risks of loss or damage to the existing building.

This is probably a somewhat complicated way of saying that if you are planning to make any kind of renovation it is important to inform your home insurer and keep the company fully on board throughout any building works.

If the renovations amount to little more than sprucing up your home through redecoration, your insurer is unlikely to be greatly perturbed. If more major renovation work is envisaged, however, the risk of damage to the insured building may be reassessed and you may either have to pay a higher premium for continuing the cover or consider entirely separate property renovations insurance.

As the name suggests, this is a specialist form of insurance and one in which we here at GSI Insurance have experience and expertise. You can read more with our renovation insurance FAQs.

Why do I need additional insurance?

The principal reason is because some renovation works, such as extensions or anything that involves walls being taken down, may be specifically excluded from the cover described in your standard home building and contents insurance. Thus, if the renovation works are in any way responsible for loss or damage to the fabric and structure of the existing building or cause loss or damage to the contents, you may find that you are not covered.

One area in which confusion sometimes arises relates to the insurance likely to be held by your contractors. Some homeowners, for example, might think that if the contractor is fully insured, then there is no need for any further cover. However, it is important to remember that the contractor’s insurance covers only his liability during any work on your behalf – your interests are not covered by your contractor’s insurance.

This might be illustrated by reference to just two particular areas:

public liability – your contractor may have public liability cover, but this does not mean that you are not going to be held liable for personal injury to any member of the public or loss or damage to their property;
theft – whatever insurance cover may be held by your contractor, you may still be liable for any loss, damage or theft of items you own, such as materials and equipment, for use in the renovation works.

So what does renovations insurance cover?

If your current insurer declines cover during the period of any building works, renovations insurance needs to step into the breach by protecting:

the structure and fabric of the existing building – with a total sum insured that is equivalent to the cost of entirely rebuilding your home;
cover against the risk of loss or damage to the renovated parts of the building – sufficient to cover the cost of complete reinstatement in the event of loss or damage;
public liability cover – typically up to a minimum of £1 million;
unoccupied property cover – if no one is living in the property during the renovation works, it is important to check that comprehensive cover is still maintained, since some insurers reduce the cover to the bare risks of Fire, Lightening, Earthquake, and Explosion (FLEA) or Fire Lightening, Earthquake, Explosion and Aircraft (FLEEA);
you might also want to ensure that your chosen insurer gives the flexibility of being able to add extra months to the period of cover – in the not unlikely event of the works over-running their scheduled completion.

Applications for property renovations insurance are typically simple and straight forward. However there are a number of questions which some insurers may ask, including some or all of the following:

scheduled start and completion dates for the works;
whether you are doing the work yourself or hiring contractors to do it on your behalf;
the estimated cost of carrying out the works and just what they involve;
whether the contractor or contractors have their own all risks insurance; and
if contractors are to be employed, is this by way of the Joint Contracts Tribunal (JCT) formally recognised and recommended by the Royal Institute of Chartered Surveyors (RICS).

With the appropriate insurance in place, you may proceed with your renovation work in the knowledge that your property is safely protected.

Regulations

The government has a responsibility for ensuring that any major building work is:

in keeping with and proportionate to the built environment of the area in question;
contributes to the general amenities of the area;
is built to current standards of construction; and
is safe.

In the pursuit of these objectives the government relies on two principal forms of regulation and control:

planning permission; and
building regulations.

Both are subject to the broad policy objectives of the government of the day, but both planning permission and building regulations are administered and enforced by local authorities.

Planning permission

If you need it, it is important to get it before you carry out any works at all, since failure to do so may result in the local authority issuing you with an “enforcement notice” requiring you to undo all of the work that has been done.

Generally speaking, it is the more major renovation projects that are likely to require planning permission. There is no hard and fast rule, however, so your very first port of call is likely to be the planning department of your local authority to see whether it is required.

In the past, this may have been a notoriously long-winded and time-consuming process. Governments and local authorities have nevertheless tried to streamline the process and there is now a single government run “planning portal” through which you may apply for planning permission online.

Building regulations

Building regulations are designed to ensure that all new construction and any significant alteration (i.e. renovation) to existing property is carried out according to modern standards of sustainability and safety. Thus, key areas for regulation are subjects such as energy efficiency, and the safety of gas and electrical installations.

Once again, it is important to ensure that your renovations comply with the building regulations and there are two main ways in which this is done:

The first – and probably the most prudent – course of action, according to Homebuilding and Renovating magazine, is to submit a detailed plan of the works, accompanied by the relevant form and appropriate fee, to secure Building Regulations approval, followed by onsite inspections to ensure that you are complying with that approval and a certificate of completion when the works have been finished;

Alternatively – and typically if you are doing the work yourself or do not have sufficiently detailed plans – you may proceed on the basis of a Building Notice, with more in depth inspections as the work progresses, the risk of being told to do some of the work again of the inspector is not satisfied, and the completion certificate when everything is done.

Given the potential for considerable expenditure on renovation work that may have to be torn down or rebuilt, therefore, it is important to secure both planning permission and a certificate of compliance with the building regulations.

Property Renovation Summary

Whether you are in search of your ultimate dream home or looking to increase the value of your capital investment in a property, whether you are going to remain the owner occupier of the home or have bought it to let, there are many different reasons for embarking on a plan of renovations.

Renovating a property, however, may prove a major operation and the more that is involved the greater the considerations that may need to be taken into account when you are researching what is possible, planning how to proceed and budgeting for the cost of the whole project.

VAT is one aspect of the costings you may need to take into account. If you are tackling a renovation project on a previously empty home, moreover, it is still more important to consider the implications for VAT, since significant reductions may be available – which it is clearly necessary for both you and your contractors to know about.

Keeping any property adequately insured is a typical concern of any owner. In the course of renovations, the heightened risks which are peculiar to a building undergoing major alteration may mean that you want to take the additional precaution of property renovation insurance.

Not just at the beginning, when you seek that initial planning permission, but throughout the building works you may need to remember the importance of conforming with and complying to building regulations.