Dominic Bradbury, Journalist & Writer


Making the leap from apartment living to a family house can be a big stretch, especially in London. Any way of making the move just a little more affordable has to be more than welcome and a little known tax break is now helping some families up the property ladder, just like Graham and Alexa Harris and their daughter Olivia. Having outgrown their old flat overlooking Primrose Hill, they were after a large family home. By converting a subdivided Victorian house – arranged as three flats – back into a family house they were able to save around 37,500 in a VAT discount applied to buildings where there is a change of use.

'In areas like Hampstead so many houses were split up into apartments in the 1960s and '70s,' says Harris, who has the advantage of being an architect and managing director of practice SHH, Spence Harris Hogan Associates. 'But there have been so many families moving back into the area that there is a real resurgence in demand for family homes. Demand is high and stock is limited so the trend is to turn them back into family homes. We began looking for a run-down property arranged as flats knowing we could take advantage of the VAT loophole.'

Alexa found the 1890s building in a quiet road, filled with Victorian houses and not far from parks and green spaces. It had been in the same family for nearly a century and over the years the owners had arranged the house as flats with a kitchen, bathroom and living room on each of the three floors. They paid 875,000 for the house.

'None of the estate agents really understood what we were trying to do or appreciated the planning and VAT issues we were thinking about,' says Harris. 'But we found the house in the end and in an area that is very well located and especially popular with families.'

They knew that the change of use VAT tax break – introduced in 2002 – would save them a good fraction of their refurbishment costs, given that it amounts to a tax bill of just five per cent on those costs rather than 17.5%. The catch was that it involved a good deal more bureaucracy than an average conversion, as it's impossible to get a standard domestic mortgage on a subdivided home. The Harris's in effect turned property developers to get a development loan to help buy the house and pay the 300,000 refurbishment budget (excluding VAT).

'Banks will loan you the money against the overall value of the property and fund you to a maximum of 70% of the cash needed for acquisition and development,' says Harris. 'So you have to come up with some funds up front and have an architect on board to certify the work. You have to report to the bank and let them know what's going on so it's not as straightforward as doing your own thing. Once you've done all the conversion work you pay the development loan off with a domestic mortgage. It can be quite complicated and as we were having a baby we also took out a bridging loan so we didn't have to sell the old flat until we were ready.'

Naturally, Harris put the project into SHH which is well known for its high end residential work, plus commercial projects and design consultancy, includingthe Michelin-starred Greenhouse restaurant in Mayfiar and a major repositioning for McDonald's which saw them designing a new generation flagship store in Oxford Street. Harris oversaw the project, serving as both client and architect, but partners David Spence and Neil Hogan also contributed ideas.

'The house was in a fairly dilapidated state,' says Harris. 'The ground floor kitchen was just a lean to at the side and everything was tired and needed redoing. So there's not much left apart from the fireplaces. Our idea was to maximise light and space, with a new extension at the rear, but also to create as much flexibility in the floor plan as possible. There was already a submitted planning scheme from the old owners to extend the house at the back and create off street parking, which gave us a head start with the planning process and doing what we wanted to do.'

Alexa, an artist who has also worked in television and theatre, needed a dedicated studio while Olivia was given a large bedroom with a linking bathroom through to the master suite on the first floor. A new stairwell was introduced with a skylight above to bring light right down into the hallway while a utility room was created up at the top of the house.

'That meant we were able to free up some space around the kitchen downstairs,' Harris says. 'If most of your laundry is generated upstairs it doesn't make any sense to bring it up and down the stairs all the time anyway. So it works very well. It's a house which really functions properly.'

The ground floor was reinvented with a large extension to the rear, with banks of glazed folding doors leading out from the main living spaces to the landscaped garden. The main idea for the ground floor was flexibility, with a largely open plan arrangement, with no internal corridors, which can be easily modified with sliding walls and doors.

'A lot of people are looking for open plan living but there are times when you wish you didn't have it and can hide the noise and mess of the kitchen,' Harris says. 'So we have a sliding wall so that you can easily separate off the kitchen from the living room. And the glass doors at the rear of the house all fold back completely so in the summer the garden really becomes an extension of the living room.'

Now the 2,700 sq ft five bedroomed, four bathroomed property has been valued at 1.95 million. Not that the Harris's and 18 month-old Olivia have any plans to move, having spent two years getting the house bought, redesigned and converted. The VAT discount, together with moving a few miles further north, has given them all they wanted of their investment.

'The house works really well for us and the savings on VAT were significant,' Harris says. 'Most clients who come to us don't think about VAT at all – a situation not helped by builders, who alwats tend to quote exclusive of VAT. They forget all about the VAT they have to pay on doing up a house, unless of course they are doing a new build, which would be zero rated.

'With this VAT break on change of use – which could apply the other way, dividing a house into flats – the government is trying to encourage the redevelopment of existing building stock rather than tempting people to demolish them and build from scratch. On many schemes for developers, or people like us, the VAT bill can be a lot of money. It can make a big difference.'

SHH – 020 8600 4171