Building vs Buying a House in London: Cost, Tax, Time and Risk

Neither route is cheaper by default. Whether you build or buy a home in London, you usually start by paying for an existing house and its stamp duty, because free plots are rare. A true replacement new build then saves the 20 percent VAT on the contractor's work, but adds demolition, planning risk and time. Buying to extend or refurbish pays VAT on most works but is often simpler to consent, and buying a finished house needs no works.

Building pays off mainly when the house you can buy cannot become the home you want.

In most London streets, a new house means replacing an existing one. The routes:

• Buy a finished house: you pay the price and stamp duty but no VAT, even on a developer's new home, whose first sale is zero rated.
• Buy a plot: rare, and often a garden, backland or infill site.
• Replace a house: demolish it completely and build new, which counts as a new build for VAT.
• Transform a house: extend it, convert the loft and renew the rest.

For a plot, join your council's self build and custom housebuilding register, often called the Right to Build register. Each borough must give planning permission or permission in principle for enough serviced plots to meet the demand on it, but joining does not entitle you to a plot.

Building tends to suit you if:

• The houses you could buy cannot become what you need.
• You want full control of the layout and energy performance.
• You can fund somewhere else to live meanwhile.

Buying and transforming tends to suit you if:

• You want location and price fixed now.
• You want to move in sooner.
• An extension, loft conversion or refurbishment can meet the brief.

Not on a contractor's work. Under HMRC's VAT Notice 708, building a new dwelling is zero rated, including the contractor's materials and demolishing the old house in the same project, once planning permission for the new house is granted. Architects' fees paid directly carry 20 percent, unless the contract makes them part of a design and build contractor's zero rated supply. Work to an existing house, including extensions, loft conversions and refurbishment, normally carries 20 percent.

The old house must come down to ground level before building starts. Only cellars, basements, the ground slab, party walls shared with neighbouring houses that stay, and a single facade, or two on a corner site, required by the planning consent may remain. HMRC's own example of a house that fails is one substantially but not fully demolished under a permission to alter and extend.

Some transformations pay 5 percent instead: conversions that change the number of dwellings, such as two flats into one house, and homes nobody has lived in for the 2 years before work starts.

If you build the house yourself, the DIY housebuilders scheme refunds the VAT on building materials for a new dwelling built from scratch, with planning permission, for you or your relatives to live in. Eligible items include fitted kitchen furniture, flooring other than carpet, soft landscaping such as topsoil and turf, and appliances designed to heat space or water or to ventilate. Fees, tools and most other appliances are excluded. You make one claim, within 6 months of completion. If a contractor builds it, its work is zero rated, so the claim covers materials you buy.

Yes. In England, as of September 2026:

• Residential: 0 percent up to £125,000, 2 percent on £125,001 to £250,000, 5 percent on £250,001 to £925,000, 10 percent on £925,001 to £1.5 million and 12 percent above. Buyers who are not UK resident usually pay a further 2 percent.
• Surcharge: a further 5 percent on every band if you also own another home worth £40,000 or more when you buy. It can be refunded if the new property was to be your main home and you sell your previous main home within 3 years of the purchase, not of moving in, claiming within 12 months of the sale.
• Garden land: a plot bought from a house's garden while it is still used as garden pays residential rates, but not the surcharge, because no house is bought.
• Other land: a bare plot that is not a garden or grounds usually pays the lower non residential rates, with no surcharge.

A house bought to knock down still pays residential rates, because HMRC sets a very high bar before a house counts as unsuitable to live in. On a £1,000,000 house, standard rates come to £43,750, and the surcharge would add £50,000. For a house you will knock down, take advice before relying on that refund.

Often, unless credited or exempt. The levy, which in London includes a Mayoral charge, is charged on net new floor space. A replaced house that was in lawful use for 6 continuous months in the 3 years before permission can have its floor area deducted, so a like for like replacement may owe little. Self builders, including those who hire a contractor, can claim exemption from the rest:

1. 01Before work starts, assume liability (Form 2), obtain the exemption (Form 7 Part 1) and get a commencement notice (Form 6) to the council, or pay a surcharge of 20 percent of the levy, capped at £2,500.
2. 02Within 6 months of completion, submit Form 7 Part 2 with the completion certificate, proof of ownership and occupation, and a VAT431NB approval, self build warranty or self build mortgage.
3. 03Live there as your main home for 3 years. If you sell or let the whole house sooner, tell the council within 14 days, and the full levy is due.

Building takes longer, because replacing a house adds a planning application, often party wall notices, and demolition before the build, while buying a finished house ends at completion.

A single replacement house usually has a statutory decision period of 8 weeks, and the fee is refunded if it is undecided after 16 weeks without an agreed extension. Many single storey extensions and rear dormer loft conversions to houses need no application under permitted development, within set limits. Flats have none, and conservation areas and Article 4 streets restrict them.

For example, Woodside in Wimbledon, two flats converted into a single dwelling with a loft conversion, was a 13 month design and build project.

Replacing a house also carries these risks:

• Planning: without consent you own a house you cannot replace, and in a conservation area demolition itself needs planning permission.
• Neighbours: taking down a semi detached or terraced house usually means party wall notices.
• Finance: lenders generally expect a new house to carry a structural warranty or a professional consultant's certificate.
• Clawback: sell or let the whole house within 3 years and the levy exemption is withdrawn.

Buying and transforming risks condition, because what an older house hides is priced when it is found, and scope, because extending is when most owners also rewire, replumb or refinish.

From real London projects priced in August 2026, all indicative, ex VAT and not a quotation:

• Most complete single storey extension projects: from around £100,000, before professional fees and planning.
• Most loft conversions: £90,000 to £115,000.
• An extension plus a whole house refurbishment, about 150 m²: £210,000 to £250,000.
• A full house refurbishment at a high standard: roughly £1,400 to £2,000 per square metre.

These are calibrated to inner west London. Prime central London projects often price 8 to 25 percent above, and outer London commonly runs 10 to 20 percent below.

We publish no figure for a new house, so compare line by line. Transforming adds the works, VAT on them and fees. Building adds demolition, the build, fees, the levy unless credited or exempt, a warranty, finance and somewhere to live meanwhile.

Our house extension, loft conversion and refurbishment cost guides have the detail, and the instant estimator prices your own project in minutes.

MVV designs and builds extensions, loft conversions and full refurbishments across South West, West and South East London, and acts as a residential development partner from sourcing and acquisition through design and construction. Before you commit to a house, we can assess what it can become and what that would cost. See design and build and property development, or talk to us.