Funding And Financial Issues
A common barrier to renovating a property for rental or sale is lack of funding.
Below you will find some information on potential funding streams and other financial issues. If you are interested in any of the funding schemes, please contact the Local Authority Public Health Protection team for further information.
Renewal Area Loans
If the empty property is in Aberystwyth Renewal Area, you may be eligible for a loan to fund any renovation work needed. The loan maximum is £24,000 and it is interest free. Repayments will need to be made to the value of 20% of the loan on the first anniversary of completion followed by monthly repayments over the next four years to pay off the loan.
Empty Properties Grant
If a property has been vacant for over 12 month, the landlord can apply for an Empty Property Grant, this is supported through the Welsh Government Aberystwyth Strategic Regeneration Scheme. Funding is available for whole properties and/or vacant/underused spaces above commercial units within the town. There is a maximum of £70,000 per property which is subject to 50% grant funding, and 20% interest free loan with the further 30% funded directly by the client. Works include improving the property and providing the necessary facilities, along with fire separation works (e.g. 1 hour fire separation is required between a residential and commercial unit). Nomination Rights will apply to each unit subject to grant/loan aid, with the requirement of letting the accommodation to a person that fits the eligibility criteria for Affordable Housing within the County, and will be subject to Intermediate Rent Levels. This condition will be in place for 5 years following certified completion of the works. If the property is sold within 10 years of the certified completion of the works, grant monies will have to be paid back to the Council (reduced amount depending upon how long after completion of the works).
Houses To Homes
Houses to Homes is the new Welsh Government initiative designed to bring empty homes (min 6 months empty) back into use for sale or rent. The scheme will involve the provision of interest free loans, generally recoverable within 3 years. This means that loans paid out in Year 1 would be repayable in Year 4. Finance may be used for:
- loans to return a property to use to sell - these loans would have a maximum 2 year repayment period and would be made available immediately the scheme opens
- loans to return a property to use for rent - these loans would have a maximum 3 year repayment period and, once again, would be made available immediately the scheme opens.
Funding will be available up front before works start, providing owners with working capital. Loans can be offered to individuals (expected 3 months pay slips), charities (3 years accounts), companies/ businesses (3 years accounts).
There will be a maximum loan amount of £25,000 per unit of accommodation, up to a maximum of £150,000 per applicant. Loans will be secured as first or second charge against the Land Registry Title.
Social Housing Grant
Ceredigion County Council administers Social Housing Grant for selected projects every year. These projects would have to involve the provision of social housing, for example the conversion of a large empty property into a number of rental units. The management of the property would be transferred to a local Housing Association who would be responsible for the letting of the property to persons on the social housing waiting list.
Private Sector Leasing Schemes
There may be an option to allow a partner organisation such as a Local Housing Association to undertake the works to your property in return for their taking over the management of the property. You would need to give up the management of the property for upwards of 5 years. Please see the relevant section under the ‘Renting’ section of this pack.
The availability of these schemes is largely based on the location and condition of the property. Each scheme would be considered on an individual basis.
There is an initial 6 month exemption on council tax payments whilst properties may be undergoing sale or renovation after changing hands etc. After the 6 month period is over, the full rate of council tax for the property will be charged.
VAT discounts on renovating empty homes
In most cases VAT is payable on the costs of renovating or adapting an empty home for re-use. But there are several circumstances in which VAT on building works is charged at a reduced rate or even zero-rated. If you are intending to renovate an empty home it is important that you understand them, because it is quite common for builders not to know about different VAT rates. This could lead to you being overcharged, and it can be difficult to reclaim overpaid VAT. The full guidance on VAT on building and construction is available from HMRC in HMRC notice 708 if you are employing builders, and HMRC notice 431C if you are carrying out work on a DIY basis.
Reduced rate VAT
If you are using builders, the home must have been empty for more than two years before works start, and must be used solely for residential use after the works. Then you may be able to pay VAT at the reduced rate (currently 5%). Further details are available on HMRC notice 708. There is no equivalent reduced VAT rate for DIY work.
Zero rate VAT (using builders)
If you are using builders, the home must have been empty for more than ten years before works start, and will be used solely for residential use after the works. Then VAT may be zero-rated. Further details are available on HMRC notice 708.
Zero rate VAT (DIY work)
If you are carrying out the building work yourself, and the property has been empty for more than ten years and will be used solely for residential use after the works. VAT on building materials is zero-rated. You will need to pay your suppliers the full cost inclusive of full VAT and then reclaim the VAT element from HMRC. Further details are available in HMRC notice 431C
Proving how long the home has been empty
In all three cases you will need to prove how long the property has been empty. One way of doing this is to ask the council for a letter certifying the length of time the property has been empty from their records. If the council is unable to provide this, you may be able to get proof of how long it has been empty from the electoral roll (this is available at your local council office or main local library, or information on disconnections from utility companies. If you are unable to demonstrate the property has been empty for more than two years, there may be other circumstances in which you can pay reduced VAT. These include installing energy saving materials, approved alterations to a listed building used by a charity, and converting a non-residential building into a home for use by a housing association. Further details on these reductions can be found in HMRC notice 708
There is also a capital allowance scheme that allows the costs of converting empty spaces above shops into flats to be offset against the profit of the business. None of these tax allowances are widely known, and it is not uncommon for builders to inadvertently charge too high a VAT rate on building works to empty homes. If you are employing builders it is good practice to ensure that you and the builders both understand and agree the correct VAT to be charged before work starts.
In addition reduced rates of VAT apply to a number of types of building works, such as installing energy saving measures, adapting a building for a disabled person or works to convert a non-residential building into a home. These discounts may apply to works to bring an empty home into use. Further information on these discounts is available from HMRC.